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EXERCISES 
IN  ACCOUNTING 


(Intermediate) 


CHARLES  F.  RITTENHOUSE,  B.  C.  S.,  C.  P.  A. 

AND 

PHILIP  F.CLAPP,  B.C.S.,C.P.A. 


Digitized  by  the  Internet  Archive 

in  2007  with  funding  from 

IVIicrosoft  Corporation 


http://www.archive.org/details/exercisesinaccouOOrittrich 


EXERCISES  IN  ACCOUNTING 

(Intermediate) 
CHARLES  F.  RITTENHOUSE,  B.  C.  S.,  C.  P.  A. 

AND 

PHILIP  F.  CLAPP,  B.  C.  S.,  C.  P.  A. 


.    \ 


ASSOCIATION  PRESS 

347  Madison  Avenue,  New  York 
1918 


Copyright,  1917 

BY 

Frederick  AI.  PIarris 


^ 


INDEX 

PAGE 

Model  Exercises  1 

PART  I :            Single  Entry— Problems  1  to  8 36 

PART  II :          Partnership— Problems  9  to  32 43 

PART  III:        Corporations 

Section  1 — General — Problems  33  to  52 49 

'                                Section  2 — Changing  a  Partnership  to  a  Corporation — Problems  53  to  57 55 

Section  3 — Consolidations — Problems  58  to  62 58 

Section  4 — Sinking  Funds — Problems  63  to  65 61 

Section  5 — Receiverships  and  Bankruptcy — Problems  66  to  70 62 

PART  IV  :         Financial  Statements — Problems  71  to  82 66 

PART  V :          Surplus  and  Reserve  Accounts — Problems  83  to  98 78 

PART  VI :         Consignments,  Branches  and  Selling  Agencies — Problems  99  to  115 84 

PART  VII :       ^Manufacturing   Accounts — Problems  116  to  127 95 

PART  VIII:     Miscellaneous 

Section  1 — Practical  Accounting — Problems  128  to  145 .  110 

Section  2 — Theorv  of  Accounts — Problems  146  to  168 116 


4 ' 2033 


MODEL   EXERCISE   B. 

John  G.  Clarke 

Trial  Balance —  December  31,  1916 


Cash 

$    5,627.00 

Accounts  Receivable 

229,296.00 

Notes  Receivable 

22,600.00 

Inventory  December  31,  1915  (cost) 

215,275.00 

Accrued  Interest  on  Notes  Receivable 

654.00 

Real  Estate  (book  value) 

161,540.00 

Store  Fixtures  (book  value) 

19,416.00 

Office  Furniture  and  Fixtures  (book  value) 

2,760.00 

Prepaid  Interest  on  Discounted  Notes 

1,350.00 

Catalogs  and  Advertising  Matter  on  Hand 

956.00 

Prepaid  Taxes 

897.00 

Prepaid  Insurance 

175.00 

Accounts  Payable 

$89,264.00 

Notes  Payable 

50,000.00 

Mortgage  Payable 

70,000.00 

Accrued  Interest  on  Notes  Payable 

560.00 

Accrued  Interest  on  Mortgage  Payable 

700.00 

John  G.  Clarke,  Capital  Account 

370,000.00 

John  G.  Clarke,  Drawings  Account 

15,677.00 

GrOvSs  Sales 

802,071.00 

Sales  Returns  and  Allowances 

17.200.00 

Gross  Purchases 

599,025.00 

Purchase  Returns  and  Allowances 

8,672.00 

Freight  and  Hauling  Inward 

4,130.00 

Advertising 

19,607.00 

Store  Clerks'  Salaries 

20,460.00 

Traveling  Salesmen's  Salaries 

18,643.00 

Traveling  Expenses 

13,721.00 

Store  Supplies  Used 

1,416.00 

Freight  and  Hauling  Outward 

2,160.00 

Office  Clerks'  Salaries 

7,482.00 

Office  Expenses 

1,786.00 

Maintenance  of  Real  Estate 

14,682.00 

Income  from  Rental  of  Upper  Floors 

11,627.00 

Interest  on  Notes  Receivable 

1,287.00 

Interest  on  Bank  Balances 

96.00 

Cash  Discounts  on  Purchases 

4,893.00 

Interest  on  Notes  Payable 

5,740.00 

Interest  on  Mortgage  Payable 

4,200.00 

Cash  Discounts  on  Sales 

2,695.00 

$1,409,170.00 

$1,409,170.00 

Inventory  December  31,  1916  (cost)            $176,482.00 

REQUIRED : 

a.     Profit  and  Loss  Statement 

b.     Balance  Sheet 

c.     Closing  Entries   (posted  to  the  ledger) 

d.     Skeleton  Ledger  Accounts   (properly  closed) 

e.     Trial  Balance  after  Closing 

COMMENTS: 

Mr.  Clarke  conducts  a  wholesale  jobbing  business.  He  owns  a  six-story  building,  using  the  basement  and  first  two 
floors  for  his  business  and  renting  the  upper  floors. 

"Maintenance  of  Real  Estate"  includes  taxes,  insurance,  repairs  to  building,  depreciation,  heat  and  light,  janitor 
and  helpers,  etc. 

Freight  and  hauling  inward  on  merchandise  purchases  is  considered  a  part  of  the  cost  of  goods  purchased,  and  the 
proper  portion  thereof  is  included  in  the  cost  of  goods  on  hand,  both  at  the  beginning  and  at  the  end  of  the  year. 
This  trial  balance  was  taken  after  all  necessary  adjusting  entries  had  bejn  made  and  posted. 

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10 


MODEL   EXERCISE   C. 


Hall  and  Marvin 
Trial  Balance  —  June  30,  1916 

Land  (cost) 
Building  (cost) 
Furniture  and  Fixtures  (cost) 
Cash 

Accounts  Receivable 
Notes  Receivable 

Inventory  December  3\,  1915  (cost) 
Mortgage  Payable 
Accounts  Payable 
Notes  Payable 

C.  R.  Marvin,  Salary  Account 
Reserve  for  Depreciation  of  Building 
Reserve  for  Depreciation  of  Furniture  and  Fixtures 
Reserve  for  Loss  on  Bad  Accounts  and  Notes  Receivable 
H.  B.  Hall,  Capital 
H.  B.  Hall,  Drawings 
C.  R.  Marvin,  Capital 
C.  R.  Marvin,  Drawings 
Sales 
Purchases 

.Freight,  Express,  and  Cartage  Inward 
Traveling  Expenses 
Salaries  and  Wages 
Delivery  Expenses 
Office  Expenses 
Insurance 

Interest  on  Notes  Receivable 
Interest  on  Notes  Payable 
Interest  on  Mortgage  Payable    ^ 
Cash  Discounts  on  Purchases 
Cash  Discounts  on  Sales 


$55,000.00 

37,500.00 

5,820.00 

7,682.53 

1 

23,731.40 

730.00 

24,260.75 

$35,000.00 

9,840.62 

5,000.00 

250.00 

7,500.00 

1,750.00 

169.80 

60,000.00 

1,869.00 

^ 

30,000.00 

•   4,705.00 

82,687.19 

53,321.60 

1,924.34 

2,107.40  , 

9,369.72 

1,290.81 

1,587.10 

435.00 

136.24 

238.90 

875.00 

. 

486.72 

372.02 

$232,820.57 

$232,820.57 

Cost  of  merchandise  on  hand  June  30,  1916  —  $25,710.40 

REQUIRED: 

(a)  Working  Sheet 

(b)  Journal  Adjusting  Entries 

(c)  Profit  and  Loss  Statement 

(d)  Balance  Sheet 

(e)  Closing  Entries 

11 


COMMENTS: 

The  firm  of  Hall  and  Marvin  conducts  a  wholesale  and  retail  hardware  business,  owning 
its  own  real  estate. 

By  the  terms  of  the  partnership  agreement,  profits  and  losses  are  shared  two-thirds  to 
Mr.  Hall  and  one-third  to  Mr.  Marvin:  Mr.  Marvin  who  acts  as  general  manager,  is  allowed 
a  salary  of  ^250.00  a  month,  which  is  considered  as  an  expense  of  operating  the  business; 
profits  not  withdrawn  by  the  partners  are  not  considered  a  part  of  their  capital  investments, 
but  are  credited  to  the  partners'  Drawings  accounts,  and  may  be  withdrawn  by  the 
partners  at  their  convenience.  On  December  31,  1915,  Mr.  Hall's  Drawings  account  con- 
tained a  credit  balance  of  $3,629.40.     Mr,  Marvin's  Drawings  account  had  no  balance. 

Freight,  express,  and  cartage  inward  on  merchandise  purchases  is  not  considered  a  part 
of  the  cost  of  goods  purchased.  The  stock  is  very  varied,  and  to  distribute  properly  the  cost 
of  freight  and  carting  among  the  numerous  commodities  would  be  difficult  and  unsatisfactory. 

During  the  six  months  ending  June  30,  1916,  the  Sales  account  has  been  credited  for 
$86,108.89  representing  gross  sales,  and  debited  for  $3,421.70  representing  sales  returns  and 
allowances;  the  Purchases  account  has  been  debited  for  $57,529.46,  gross  purchases,  and 
credited  for  $4,207.86,  purchase  returns  and  allowances. 

In  order  that  the  results  of  the  period  may  be  correctly  shown,  the  following  items 
require  adjustment:  — 

Unexpired  insurance  as  of  June  30  $260.00 

Taxes  accrued  to  June  30  102.50 

Interest  accrued  on  interest  bearing 

notes  receivable  to  June  30  24.60 

Interest  accrued  on  interest  bearing 

notes  payable  to  June  30  75.00 

There  are  office  supplies  on  hand 

which  cost  150.89 

Depreciation  on  the  building  is  figured 
at  the  rate  of  2%  per  annum:   on  the 
furniture  and  fixtures  at  10%  per  annum. 

It  is  desired  to  set  aside  out  of  the 
profits  for  the  period  a  further  reserve 
for  loss  on  bad  accounts  and  notes  re- 
ceivable amounting  to  }/2%  of  the  net  sales. 


12 


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I 

13 


Model  Exercise  C 


HALL  AND  MARVIH 


(TRADING  AND  PROiFIT  AlfD  LOSS  STAIPEMENT 
FOR  SIX  MONTHS  ENDING  JUNE  50  >    1916 


Nat  Sales: 

Gross  Sales 

Less  -  Returns  and  Allowances 
Deduct  -  Cost  of  Salesi 

Goods  on  Hand  Deoember  31.1915  $24,260.76 

Net  Purchases: 

Gross  Purohaseo    $57,529.46 
Less  -  Returns  and 

Allowances   4.207.86  53.521.60 

Less  -  Goods  on  Hand  June  30,  1916 
Gross  Trading  Profit 
Deduct  -  Operating  Expenses: 

Freight,  Express  and  Cartage  Inward 
.  Traveling  Expenses 

Salaries  and  Wiages  ^ 

Delivery  Expenses 

Office  Expenses 

Taxes 

Insurance 

Depreciation  of  Buildings 

Depreciation  of  Furniture  and  Fixtures 

Net  Trading  Profit—  

Add  -  Extraneous  Income  Items: 

Interest  on  Notes  Receivable 

Cash  Discounts  on  Purchases 
Total  Income 
Deduct  -  Extraneous  Expense  Items: 

Interest  on  Notes  Payable 

Interest  on  Mortgage  Payable 

Cash  Discounts  on  Sales 

Loss  on  Bad  Debts  and  Accounts  Receivable 
Net  Profit  for  Period: 

H.  B.  Hall  -  two -thirds 

C.  R.  Marvin  -  one-third 


86,108 
3.421 


77,582 
25.710 


1,924 

2.107 

9,369 

1,290 

1,436 

102 

175 

376 

291 


160 
486 


313 
875 
372 

413 


8,277 
4.138 


89 
70 


82,687 


19 


35 
40 


51.871 


95 


30,815 


24 


34 

40 
72 
81 
21 
50 
00 
00 
00 


17.071 


98 


84 
72 


13,743 


647 


26 


M. 


14.390  82 


90 

00 
02 


64 
82 


1,974 


12,416 


36 


46 


14 


Model  Exercise  C 


HALT.  AND  MARVIN 


BALANCE  SHEET,  JUNE  50.  1916 


ASSETS 

FIXED  ASSETS: 

Land  (ooet) 

Building  (cost)  $37,600.00 

Less  -  Reserve  for  Depreciation  7,875.00 

Furniture  and  Fixtures  (cost)  $6,820.00 

Less  -  Reserve  for  Depreciation  2^041.00 
CURRENT  ASSETS; 

Cash  on  Hand 

Accounts  Receivable         $23,731.40 

Less  -  Reserve  for  Loss  on 
Bad  Accounts  and 
Notes  Receival)le         583.24 

Notes  Receivable 

Accrued  Interest  on  Notes  Receivabld 

Merchandise  on  Hand 
DEFERRED  CHARGES  TO  PROFIT  AND  L0S,St 

Unexpired  Insurance 

Office  Supplies  on  Hand 
TOTAL  ASSETS 


66,000 

29.626 

3,779 


LIABILITIES  AND  NET  WORTH 

FIXED  LIABILITIES: 
Mortgage  Payable 
CURRENT  LIABILITIES^ 
Accounts  Payable 
Notes  Payable 

Accrued  Interest  on  Notes  Payable 
Accrued  Taxes 

Due  C,  R.  Marvin  on  Salary  Account 
TOTAL  LIABILITIES 
H.  B.  HALL'S  NET  WORTH: 
Capital  Investment 
Add  -  Profits  Accumulated  to 

December  31,  1915      $3,629.40 
Two -thirds  Net  Profit 
for  Six  Months  Ending 
June  30,  1916 


8,277.64 
$11,907.04 


5.496.40 


Less  -  Drawings  December 
31,  1915  to  June 
30,  1916 
C.  R.  MARVIN'S  NET  WORTH: 
Capital  Investment 
Deduct  -  Drawings  December  31, 

1915  to  June  30,1916  $4,705.00 
Less  -  One -third  Net 

Profit  for  Six 
Months  Ending 
June  30.  1916  4.138.82 
TOTAL  LIABILITIES  AND  NET  WORTH 


7,682 


23.148 

730 

24 

26.710 


260 
150 


9,840 

5.000 

75 

102 

250 


60,000 


6,408 


30.000 


566 


00 
00 


53 


16 

00 
60 
40 


00 
89 


62 
00 
00 
50 
00 


00 


64 


00 


18 


88.404 


00 


67,295 
410 


69 

89 


146.110 


58 


36,000 


00 


15.268 


12 


50,268 


12 


66,408 


64 


29.453 


82 


146,110 


58 


15 


Model  Kxerolee  C 


HAIL  AND  MARVIN 


ADJUSTINS  ENTRIES,  JUNE  30,  1916 


Unexpired  Insiirance  No.  1 

Insurance 

To  bring  onto  the  "books  the 
unexpired  insurance  as  of  this  date 

30 


Accrued  Interest  on  Notes  Reoeivahle 
Interest  on  Notes  Receivahle 

To  "bring  onto  the  hooks  the 
interest  accrued  to  date  on  interest 
hearing  notes  receivahle: 

J.  A.  Shore's  note  of  10/l5/l5, 

$500,  8  mos.  15  days  at  6^    $21.25 
R.  C.  Cram's  note  of  4/3/16, 
$230,  2  mos.  27  days  at  6^5 


Taxes 

Taxes  Accrued 

To  hring  onto  the  hooks  the 
taxes  accrued  to  date 

30 


No.  2 


No.  3 


.30- 


3.35 
$24.60 


Interest  on  Notes  Payahle  No.  4 

Interest  Accrued  on  Notes  Payahle 
To  hring  onto  the  hooks  the 
interest  accrued  to  date  on  interest 
hearing  notes  payahle: 

Note  of  4/1/I6  favor  First  Nat»l. 
Bank,  $5,000,  90  days  at  6% 
30 


Office  Supplies  on  Hand  No*  5 

Office  Expenses 

To  hring  onto  the  hooks  the 
cost  of  office  supplies  on  hand  as 
of  this  date 
30 


Depreciation  of  Building             No.  6 
Reserve  for  Depreciation  of  Building 
Estimated  depreciation  on  the 
huilding  for  the  six  months  ending 
6/30 /I6.  Figured  on  cost  ($37,500) 
at  the  rate  of  2%  per  annum 
30 


Depreciation  of  Furniture  and  Fixtures  No.  7 
Reserve  for  Depreciation  of  Furniture 
and  Fixtures 

Estimated  depreciation  on 
furniture  and  fixtures  for  the  six 
months  ending  6/30/I6.  Figured  on 
cost  ($5,820)  at  the  rate  of  10^ 
per  €uinum 
^30 


Loss  on  Bad  Accounts  and  Notes  ReceivahleNb.8 
Reserve  for  Loss  on  Bad  Accounts  and 
Notes  Receivahle 

To  set  aside  from  the  profits  of 
the  period  -j^  of  the  net  sales  to- 
provide  for  future  losses  on  had 
accounts  and  notes  receivahle 


260 


102 


24 


00 


50 


60 


260 


102 


24 


00 


50 


60 


75 


00 


75 


00 


150 


89 


150 


89 


375 


00 


375 


00 


291 


00 


291 


00 


413 


44 


413 


'44 


16 


HALT.  AND  MARVIN 


CLOSING  ENTRIES,  JUNE  80.  1916 


Trading 

Inventory 

Goods  on  hand  12/31/15  per  inventor 

30 


Trading 

Purchases 

Net  purchases  for  six  months  ending 
6/30/16 
30 


Sales 

Trading 

Net  sales  for  six  months  ending 
6/30/16 
30 


Inventory 
Trading 

Goods  on  hand  6/30/16  per  inventory 

30 


Trading 

Profit  and  Loss 

To  transfer  to  Profit  and  Loss 
account  the  gross  trading  profit  for 
the  six  months  ending  6/30/l5  as  repre- 
sented by  the  balance  of  the  Trading 
account 
30 


Interest  on  Notes  Receivable 
Cash  Discounts  on  Purchases 
Profit  and  Loss 

To  transfer  to  Profit  and  Loss 
account  the  balances  of  the  accounts 
representing  extraneous  income  for  the 
six  months  ending  6/30/16 
30 


Profit  and  Loss 

Freight,  Express  and  Cartage  Inward 

Traveling  Expenses 

Salaries  and  Wages 

Delivery  Expenses 

Office  Expenses 

Taxes 

Insurance 

Depreciation  of  Building 

Depreciation  of  Furniture  and  Fixtures 
To  transfer  to  Profit  and  Loss 
account  the  balances  of  the  accounts 
representing  operating  expenses  for  the 
six  months -  ending  6/30/16 
30 


Profit  and  Loss 

Interest  on  Notes  Payable 
Interest  on  Mortgage  Payable 
Cash  Discounts  on  Sales 
Loss  on  Bad  Accounts  and  Notes  Receivable 
To  transfer  to  Profit  and  Loss 
account  the  balances  of  the  accounts 
representing  extraneous  expenses  for 
the  'six  months  ending  6/30/16 
- : 30 


Profit  and  Loss 

H.  B.  Hall,  Drawings 
C.  R.  Marvin,  DravrLngs 

To  transfer  to  the  partners ' 
drawings  accounts  the  net  profit  for 
the  six  months  ending  6/30/16  iia  the 
proportion  of  two-thirds  to  H.  B.  Hsill 
and  one -third  to  C.  R.  Marvin 


$E4,£60 


53,321 


82,687 


25 » 710 


30,816 


160 
486 


17,071 


1,974 


75 


60 


19 


40 


24 


84 
72 


98 


36 


12,416  46 


$24,260 


53,321 


82,687 


25,710 


30,816 


647 


1,924 

2,107 

9,369 

1,290 

1,436 

102 

175 

375 

291 


313 

'  875 

372 

413 


8,277 
4,138 


75 


60 


19 


40 


24 


56 


34 
40 
72 
81 
21 
50 
00 
00 
00 


90 
00 
02 
44 


64 
82 


Model  Exercise  D 


DOWNS  AHD 

BALANCE  SHEET 


$155,000 
24.500 


2.730, 


$5,000 
1.250 


ASSETS 

FIXED  ASSETS: 
Land  (cost) 
Buildings  (cost) 
Less: 

Reserve  for  Depreciation 
Sales  Department  Pxirniture  and 

Fixtures  (cost) 
Less: 

Reserve  for  Depreciation  - 
Office  Furniture  and  Fixtures  (cost) 
Less: 

Reserve  for  Depreciation 

Total  Fixed  Assets 
GOODWILL 
SINKING  FUND  INVESTMENTS^ 

Secxirities  and*  Cash  in  Hands  of  Trustees 
OUTSIDE  INVSSTI.IENTS : 

Sectirities  Omied  (cost)  -  market 

value  $17,268.00 
Vacant  Land  (cost,  including  taxes  to 
June  30.  1916) 

Total  Outside  Investments 
CURRENT  ASSETS: 

Cash  (in  banks  and  at  office) 

Accounts  Receivable 

Less: 

Reserve  for  Loss  on  Doubtful 
Accounts 

Reserve  for  Cash  Discounts        

Due  from  Subscribers  to  Capital 

Stock  -  Common 
Notes  Receivable 
Merchandise  on  Hand  (cost) 
Less: 

Reserve  for  Adjustment  of  Inventory  Value 
Office  Supplies  on  Hand 

Total  Cxirrent  Assets 
PREPAID  ITEMS: 

Unexpired  Insurance 
Interest  Prepaid  on  Notes  Discounted 
Total  Prepaid  Items 
DEFERRED  CHARGES  TO  PROFIT  AND  LOSS: 

Bond  Discount  and  Expenses  Unextinguished 
Organisation  Expenses  Unextinguished 

Total  Deferred  Charges  to  Profit  and  Lose 


.00 

.00 
$9,200.00 


00 
00 

00 


$63,284.36 


72.000 
130,500 

6,470 
3.750 


18,760 
18.724 


$2,789 
1,200 


.60 

.00   3.989. 


60 


$160,620. 
s     8.500. 


60 
00 


Total  Assets 


7.829 


69,294 

18.000 
6.600 


152,020 
267 


1.960 
136 


19.500 
14.300 


00 


00 


00 


00 


89 


212.720 
100.000 

46.728 


37.484 


243.912 


2.086 


33,800 


00 
00 

60 


30 


676.732  g5 


75 


70 


00 


Bote: 

There  are  in  the  treasury  250  shares  of  common  stock  donated 
'to  the  company  by  the  incorporators  for  the  purpose  of  raising  additional 
working  capital. 


18 


FISHER  OOUFABT 


JUME  30.  1916 


IT ABILITIES  AND  HBT  WORTH 

FUNDED  33BBT: 

Five  Per  Cent  First  Mortgage  Siniing  Fund 

Bonds  -  Due  Janiiary  1,  1926  -  Authorized 

Issue  $100,000.00: 

Issued 

$92,000.00 

Less: 

Retired  through  Sinking  Fund 
Six  Per  Cent  Debenture  Bonds,  Due  July  1,  1930 
Total  Funded  Debt 

18.000.00 

74,000 
30.000 

00 
00 

00 

104.000 

CURRENT  LIABILITIES: 

Notes  Payable 

24,000 

00 

Aooounts  Payable 

86.732 

46 

Dividends  Payable: 

On  Seven  Per  Cent  Preferred  Stook  (3j^  semi- 

annual, due  July  16,  1916) 

$3,600.00 

On  Common  Stook  (4^  semi-annual,  due 

July  16,  1916) 
Aoorued  Items : 

7,000.00 

10,600 

00 

Interest  on  Funded  Debt: 

Five  Per  Cent  First  Mortgage 

Bonds                      |l, 850.00 

Six  Per  Cent  Debenture  Bonds       90G«00 

$2,750.00 

Interest  on  Notes  Payable 

1,360.00 

Taxes 

1,686.00 

Salaries  and  Wages 

Total  Current  Liabilities 

1.432.66 

7.227 

65 

128.460 

11 

CAPITAL  STOCK  -  COMMON,  SUBSCRIBED  AND 

UNISSUED  -  800  SHARES 
TOTAL  LIABILITIES 

30.000 

00 

262.460 

11 

CAPITAL  STOCK: 

Seven  Per  Cent  Preferred  -  Authorized  Issua 

1500  Shares,  Par  |lOO: 

Full  Paid  and  Issued,  1000  Shares 

100,000 

00 

Common  -  Authorized  Issue  3000  Shares.  Par  $100: 

Full  Paid  and  Issued  2000  Shares: 

In  Hands  of  Stockholders,  1750  Shares     ♦176,000.00 

In  Treasury,  250  Shares 

Total  Capital  Stook 

26.000.00 

200.000 

00 

300,000 

00 

WORKING  CAPITAL  DONATED  -  (Proceeds  of  sale  of 

250  shares  of  ooramon  stock  from  the  treasury) 

21,630 

00 

APPROPRIATED  SURPLUS: 

Reserve  for  Sinking  Fund  Requirements 

55,396 

60 

UNDIVIDED  PROFITS: 

Balance  December  31,  1915          $30,389.67 

Add: 

Net  Profit,  Six  Months  Ending 

June  30,  1916  per  Profit 

and  Loss  Statement             26.023.97 

$56,413.64 

Less: 

Dividends  Declared: 

On  Preferred  Stook 

(3i^  semi-annual)   $3,500.00 

On  Common  Stook 

(4^  semi-annual)     7.000.00  $10,500.00 

Reserve  for  Sinking  Fund 

Raquirementa                     8.668.00 
Total  Undivided  Profits 
TOTAL  NET  WORTH 

Total  Liabilities  and  Net  Worth 

19.168.00 

. 

37.246 

64 

414,272 

14 

676,732 

26 

19 


Model  Szerclse  D 


DOT?NS  AITD  FISHBR  COMPAMY 

INCOME  AND  PROFIT  AKD   LOSS  STATEMBJIIP 
FOR  THE  SIZ  MONTHS  ENDING  JUNE  30.  1916 


SET  SALES: 
6ro88  Sales 
Less: 

Retnims  and  Allowanoes 
Deduot: 

COST  OP  GOODS  SOLD: 

Inventory  December  31,  1915 
Net  Purchases: 

Gross  Purchases  |669, 827.40 

Less: 

Returns  and  Allowances      18.260.39 
Freight  and  Hauling  Inward. 
Less: 

Inventory  June  30,  1916 
GROSS  PROFIT  ON  SALES 
Deduct: 

SELLING  EXPENSES: 
Salesmen's  Salaries 
Traveling  Expenses 
Shipping  Expenses 
Taxes  and  Insurance  on  Stock 
Taxes  and  Insurance  on  Sales  Department 

Furniture  and  Fixtxires 
Depreciation  of  Sales  Department 

Furniture  and  Fixtures 
Proportion  of  Expense  of  Building 
Maintenance  ( 76^) 
GENERAL  ADMINISTRATIVE  EXPENSES: 
Officers'  Salaries 
Office  Salaries 
Office  Expenses  and  Supplies . 
Taxes  and  Insurance  on  Office  Purnitxire 

and  Fixtures 
Depreciation  o±  Office  Furniture  and 

Fixtures 
Proportion  of  Expense  of  Building 
Maintenance  (25^) 
NET  OPERATING  INCOME 
Add: 

OTHER  INCOME: 

Income  on  Securities  Owned 
Interest  on  Notes  Receivable 
Cash  Discounts  on  Purchases 
Profit  on  Sale  of  Securities 
SOTAL  INCOME 
Deduct: 

OTHER  CHARGES: 

Interest  on  Funded  Debt 
Interest  on  Notes  Payable 
Cash  Discounts  on  Sales 
Premiums  on  Redeemed  Bonds 
Bond  Discount  and  Expenses  Written  Off 
Organization  Expenses  Written  Off 
Loss  on  Bad  Accounts 
NET  INCOME  -  SURPLUS  FOR  PERIOD 


$184,962.38 


551,567.01 
5,829.50 


|26, 432.80 

20,869.40 

5,942.60 

1,286.50 

150.64 

765.00 

11,446.87 


^37,853.00 

12,272.46 

1,781.30 

110.75 

465.00 

3,816.63 


746,829 
12.364 


742,358 
160.520 


66,893 


56.298 


924 
1,832 
8,269 
3.466 


2,750 
1,589 
4,387 
1,650 
910 
2,340 
4.277 


60 
30 


734,465 


30 


89 
60 


581.838 


152,627 


29 
01 


81 


14 


3.23.191 


95 


00 
50 
40 
77 


29 , 435 


14,492 


43,927 


06 


67- 
73 


00 
40 
30 
00 
00 
00 
06 


17.903 


26,023 


76 
97 


20 


Model  Exercise  D 


DOIVNS  AND  PISHER  COMPANY 


CLOSING  ENTRIES.  JUNE  50.  1916 


Sales 

12,364 

30 

To  Sales  Returns  and  Allowances 

12,364 

30 

To  oloae  into  the  Sales  account  the  sales 

returns  and  allowances  for  the  six  months  ending 

June  30,  1916 

Purchase  Rettirns  and  Allowances 

18,260 

39 

To  Purchases 

le',  260 

39 

To  close  into  the  Purchases  accotint  the 

purchase  rettims  and  allowances  for  the  six  months 

ending  June  30,  1916 

Purchases 

'  5.829 

50 

To  Freight  and  Hauling  Inward 

5,829 

50 

To  close  into  the  Purchases  account  the  freight 

and  hauling  inward  on  pxirchases  for  the  six  months 

ending  June  30,  1916 

Purchases 

184,962 

38 

To  Inventory 

184.962 

38 

Cost  of  goods  on  hand  December  31,  1915 

Inventory 

160. 520 

60 

To  Purchases 

160.520 

60 

Cost  of  goods  on  hand  June  30,  1916 

Sales 

734,465 

30 

To  Cost  of  Goods  Sold 

734.465 

30 

Net  Sales  for  the  six  months  ending 

June  30.  1916: 

Gross  sales                     0746.829,60 

Less: 

Returns  and  Allowances           12.364.30 

^34,465  30 

Cost  of  Goods  Sold 

581 . 838 

29 

To  Purchases 

681,838 

29 

Cost  of  goods  sold  for  the  six 

months  ending  June  30,  1916: 

Inventory  12/31/15                $84,962.38 

Net  Purchases: 

Gross  purchases      $569,827.40 

Less: 

Returns  and 

allowances        18.260.39  551,567.01 

Freight  snd  hauling  inward           5.829.50 

$742,358.89 

Less; 

Inventory  6/30/16               160,520.60 

$581,838.29 

. 

Cost  of  Goods  Sold 

152,627 

01 

To  Profit  and  Loss 

152,627 

01 

Gross  profit  on  sales  for  six  months 

ending  June  30,  1916: 

Het  sales                      $734,465.30 

Less: 

Cost  of  sales                   581,838.29 

$152,627.01 

Income  on  Securities  Owned 

924 

00 

Interest  on  Notes  Receivahle 

1,832 

60 

Cash  Discounts  on  Purchases 

8.269 

40 

Profit  on  Sale  of  Securities 

3,466 

77 

To  Profit  and  Loss 

14,492 

67 

To  close  Into  Profit  and  Loss  accoxmt  the 

Items  of  extraneous  income  for  the  six  months 

ending  June  30,  1916 

21 


Model  Exercise  J) 


CI.OSING  BHTRIBS,  JUHE  30,  1916  -  continued 


Profit  and  Lobs 

To  Salesmen's  Salaries 
Traveling  Expenses 
Shipping  Expenses 
Taxes  and  Insurance  on  Stook 
Taxes  and  Insurance  on  Sales  Department  Furniture 

and  Fixtures 
Depreciation  of  Sales  Department  Furniture  and 

Fixtures 
Building  Maintenance 
Officers'  Salaries 
Office  Salaries 
Office  Expenses  and  Supplies 

Taxes  and  Insurance  on  Office  Furniture  emd  Fixtures 
Depreciation  of  Office  Furniture  and  Fixtures 
To  close  into  Profit  and  Loss  accoxmt  the 
accounts  representing  the  operating  expenses  for 
the  six  months  ending  June  30,  1916 

Profit  and  Loss 

To  Interest  on  Funded  Deht 
Interest  on  Notes  Payable 
Cash  Discounts  on  Sales 
Premixuns  on  Be  deemed  Bonds 
Bond  Discount  and  Expenses  Written  Off 
Organization  Expenses  Written  Off 
Loss  on  Bad  Aoooxints 

To  close  into  Profit  and  Loss  account  the 
items  of  extraneous  expense  for  the  six  months 
ending  June  30,  1916 

Profit  and  Loss 

To  Undivided  Profits 

To  transfer  to  Undivided  Profits  account  the 
net  ihoome  for  the  six  months  ending  June  30,  1916 


123,191 


17,903 


96 


76 


26.023 


97 


26,432 

20,869 

5,942 

1.286 

160 

765 

15,262 

37,853 

12,272 

1.781 

110 

466 


2,750 
1,689 
4.387 
1,650 
910 
2,340 
4,277 


26.023 


80 
40 
60 
50 

64 

00 
50 
00 
46 
30 
75 
00 


00 
40 
30 
00 
00 
00 
06 


97 


22 


MODEL  EXERCISE  E. 


MODEL  MANUFACTURING  COMPANY 
TRL\L  BALANCE  —  DECEMBER  31,  1916 


Land  and  Buildings 

Machinery 

Power  Plant  Equipment 

Shafting  and  Belting 

Furniture  and  Fixtures 

Goodwill 

Securities  Owned 

Cash  in  Banks 

Imprest  Cash  Fund 

Accounts  Receivable 

Notes  Receivable 

Advances  to  Salesmen 

Accrued  Interest  on  Notes  Receivable 

Raw  Materials  (On  hand  December  31,  1915— $6,800; 

gross  purchases  $95,600.) 
INIanufacturing  (Goods  in  process  December  31,  1915) 
Finished  Goods  December  31,  1915 
Factory  Supplies  on  Hand 
Office  Supplies  on  Hand 
Taxes  Paid  in  Advance 
Insurance  Paid  in  Advance 
Interest  on  Notes  Payable  Paid  in  Advance 
Legal  Expenses  Deferred 
Capital  Stock  —  Preferred  (750  shares,  par 

value  $100) 
Capital  Stock  —  Common  (1000  shares,  par 

value  $100) 
Surplus 

Real  Estate  Mortgage  Assumed  in  Purchase 
,        of  property 
Accounts  Payable 
Notes  Payable 

Accrued  Interest  on  Mortgage  Payable 
Accrued  Interest  on  Notes  Payable 
Accrued  Salaries  and  Wages 
Accrued  ExJ)enses 

Reserve  for  Depreciation  of   Buildings 
Reserve  for  Depreciation  of  Factory  Machinery 

and  Equipment 
Reserve  for  Depreciation  of  Furniture  and  Fixtures 
Reserve  for  Loss  on  Bad  Debts 
Sales  of  Finished  Goods 
Sales  Returns  and  Allowances 
Purchase .  Returns  and  Allowances 


$110,800.00 

30,670.00 

19,500.00 

2,500.00 

4,500.00 

25,000.00 

15,000.00 

9,280.50 

300.00 

47,250.00 

3,000.00 

800.00 

50.00 

102,400.00 

10,360.00 

46,700.00 

200.00 

150.00 

400.00 

360.00 

75.00 

2,600.00 


4,260.40 


$75,000.00 

100,000.00 
14,250.00 

60,000.00 

26,500.00 

5,000.00 

1,800.00 

62.50 

780.00 

250.00 

16,700.00 

19,100.00 

600.00 

5,280.00 

239,909.00 

1.720.00 


23 


TRIAL   BALANCE  —  DECEMBER   31,    1916  (Concluded) 

Freight  and  Hauling  Inward  $1,620.00 

Direct  Labor  54,620.00 

Superintendence  5,940.30 

Fuel  Used  2,600.00 

Salaries  of  Engineer  and  Firemen  3,680.20 

Taxes  and  Insurance  on  Factory  Buildings  1,562.50 

Depreciation  of  Factory  Buildings  2,289.40 

Taxes  and  Insurance  of   Factory  Machinery  and  Equipment                                            937.50 

Depreciation  of   Factory   Machinery  and   Equipment  2,500.00 

Repairs  to  Factory  Machinery  and  Equipment  800,00 

Factory  Office  Salaries  and  Expenses  3,580.65 

Advertising  5,000.00 

Salaries  of  Salesmen  10,650.00 

Traveling  Expenses  6,780.30 

Delivery  Expenses  2,684.00 

General  Office  Salaries  and  Expenses  10,294.60 

Taxes  and  Insurance  on  Office  Building  300.00 

Depreciation    of    Office   Building  864.00 

Interest  on  Notes  Receivable  280.85 

Income  on  Securities  Owned  180.00 

Interest  on  Mortgage  Payable  1,800.00 

Interest  on  Notes  Payable  289.00 

Loss  on  Bad  Debts  1,564.00 

Legal  Expenses  Extinguished  900.00 


557,412.35      557,412.35 
Inventories  December  31,  1916: 

Raw  Materials  $7,100.00 

Goods  in  Process  12,900.00 

Finished  Goods  44,800.00 

Note : 

During  the  year,  dividends  amounting  to  7%  on  the  preferred  stock  and  6  %  on  the  common 
stock  have  been  declared  and  paid. 


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EXHIBIT  B 

PROFIT  AND  LOSS  STATEMENT  OF  THB  MODEL  MAIIUFAC TURING  COMPAIfY 
FOR  THE  YEAR  ENDINO  DECEMBER  51.  1916 


NET  SALES  OF  MANUFACTURED  GOODS: 

Gross  Sales 

Less  -  Returns  and  Allowances 
Deduct  -  COST  OF  MANUFACTURED  GOODS  SOLD: 

On  Hand  Decemter  31,  1916         f46, 700,00 

Cost  of  Goods  Manufactured 

During  the  Year  -  See  Exhibit  C  171.170.65 

Deduct  -  On  Hand  December  31,  1916 

GROSS  PROFIT  ON  SALES  OF  MANUFACTURED  GOODS 
Deduct  -  Selling  and  General  Expenses: 


239,909 
4,260 


217,870 
44,800 


Selling  Expenses: 

Advertising 

Salaries  of  Salesmen 

Traveling  Expenses 

Delivery  Expenses 
General  Administrative  Expenses: 

General  Office  Salaries 
and  Expenses 

Taxes  and  Insurance  on 
Office  Building 

Depreciation  of  Office  Building 

NET  OPERATING  PROFIT 

Add  -  Extraneous  Income  Items: 
Interest  on  Notes  Receivable 
Income  on  Securities  Owned 

TOTAL  INCOME 

Deduct  -  Extraneous  Expense  Items: 
Interest  on  Mortgage  Payable 
Interest  on  Notes  Payable 
Loss  on  Bad  Debts 
Legal  Expenses  Extinguished 

NET  PROFIT 


$5, 

10, 

6. 

_2. 


000.00 
660.00 
780.30 
684.00 


$10,294.60 

300.00 
864.00 


25,114 


11.458 


280 
JL8CI 


1,800 
289 

1,564 
900 


00 

40 


55 

00 


30 


60 


85 
QQ. 


00 
00 
00 
00 


236,648 


173.070 


62.678 


60 


55 


06 


36.572 


90 


26,005 


460 


15 


85. 


26,466 


4.653 


00 


00 


21.913 


00 


26 


Model  Exercise  B 


BZHIBIT  C 


STATEMENT  SHOWING  COST  OF  GOODS  MANITPACTURED  BY  THB 

MODEL  MANUFACTURING  COMPANY 

FOR   THE  YEAR  SITDING  DECEMBER  51.    1916 


RAW  MATERIALS  USED: 

Tf^-            .  -  ■      ■■= 

On  Hand  December  31,  1915        $6,800.00 

Net  Purohases: 

Gross  Purchases     $95,600.00 

Less  -  Returns 

and  Allowances      1.720.00  93.880.00 

i'reight  and  Hauling  Inward        1,620.00 

102,300 
7,100 

00 
00 

95,200 
54.620 

00 
00 

Deduct  -  On  Hand  December  31,  1916 
DIRECT  LABOR 

MANUFACTURING  EXPENSES: 

Superintendence 

6,940 

30 

Fuel  Used 

2.600 

00 

Salaries  of  Engineer  and  Firemen 

3,680 

20 

Taxes  and  Insurance  on  Factory  Buildings 

1.562 

50 

Depreciation  of  Factory  Buildings 

2.289 

40 

Taxes  and  Insurance  on  Machinery  and 

Equipment 

937 

50 

Depreciation  of  Machinery  and  Equipment 

2,500 

00 

Repairs  to  Machinery  and  Equipment 

800 

00 

Factory  Office  Salaries  and  Expenses 
TOTAL  MANUFACTURING  CHARGES 

3,580 

65 

23,890 

55 

173,710 

55 

Add  -  cxoods  in  Process  December  31,  1916 

10.360 

00 

134,070 

55 

Deduct  -  Goods  in  Process  December  31,  1916 
NET  COST  OF  GOODS  MANUFACTURED 

12,900 

00 

171,170 

55 

27 


Model  Exercise  B 


MODBL  MAmJFAC TURING  COMPAHY 
CLOSING  ENTRIES,  DEOEMBBR  51,  1916 


Purohase  Returns  and  Allowances 
To  Raw  Materials 

Returns  and  allowances  on 
purchases  of  raw  materials  for  the 
year  ending  12/31/16 

Raw  Materials 

To  Freight  and  Hauling  Inward 

Freight  and  hauling  inward  on 
purchases  of  raw  materials  for  the 
year  ending  12/31/16 

Manuf  ac  tur  ing 
To  Raw  Materials 

Cost  of  raw  materials  used  in 
manufacturing  for  the  year  ending 
12/31/16: 

On  hand  12/31/15         $6,800.00 
Net  purchases  93.880.00 

Freight  and  hauling  inward  1.620.00 

$102,300.00 
Less  -  On  hand  12/3l/l6    7,100.00 


$95.200.00 


Manuf ac  tur  ing 
To  Direct  Labor 

Cost  of  direcli  labor  for  the 
year  ending  12/31/16 

Manuf  ac  tur  ing 

To  Superintendence 
Fuel  Used 

Salaries  of  Engineer  and  Firemen 
Taxes  and  Insurance  on  Factory 

Buildings 
Depreciation  of  Factory  Building 
Taxes  and  Insurance  on  Machinery 

and  Equipment 
Depreciation  of  Machinery  and 

Equipment 
Repairs  to  Machinery  and  Equipment 
Factory  Office  Salaries  and  Expenses 
Manufacturing  expenses  for  the 
year  ending  12/3l/l6 

Finished  Goods 
To  Manufacturing 

Cost  of  goods  manufactured 
for  the  year  ending  12/31/16: 
Goods  in  process 

12/31/15 
Raw  materials  used 
Direct  labor 
Manufacturing  expenses 


Less  -  Goods  in 
process  12/31/I6 


1,720 


1,620 


95,200 


$10,360.00 

95.200.00 

54,620.00 

23.890.55 

$184,070.55 

12.900.00 


$171,170.55 


Sales  of  Finished  Goods 

To  Seiles  Returns  and  Allowances 

Sales  returns  and  allowances 
for  the  year  ending  12/31/16 


23 


54,620 


23»890 


00 


00 


00 


00 


55 


171,170 


4,260 


55 


40 


1,720 


1,620 


95,200 


54,620 


5,940 
2,600 
3.680 

1,562 
2,289 

937 

2,500 

800 

3,580 


171.170 


00 


00 


00 


00 


30 
00 
20 

50 
40 

50 

00 
00 
65 


56 


4.260 


40 


CLOSING  ENTRIES.  JUNE  50.  1916  -  continued 


Sales  of  Finished  Goods 
To  Finished  Goods 

Cost  of  finished  goods  sold  for 
the  year  ending  12/31/16: 

On  hand  12/31/16        |46, 700.00 
Manufactured  during 
the  year 


171,170.55 
$217,870.55 
less  -  On  hand  12/31 /l6   44,800.00 


$173,070.55 


Sales  of  Finished  Goods 
To  Profit  and  Loss 

Gross  profit  on  sales  of 
finished  goods  for  the  year  ending 
12/31/16: 

Net  sales  $235,648.60 

Less  -  Cost  of  sales     173.070.55 


$62.578.06 


Interest  on  Notes  Heceivable 
Income  on  Securities  Owned 
To  Profit  and  Loss 

Extraneous  income  items  for 
the  year  ending  12/31/16 

Profit  and  Loss 
To  Advertising 

Salaries  of  Salesmen 
Traveling  Expenses 
Delivery  Expenses 

General  Office  Salaries  and  Expenses 
Taxes  and  Insurance  on  Office  Building 
Depreciation  of  Office  Building 
Selling  and  general  expenses 
for  the  year  ending  12/31/16 

Profit  and  Loss 

To  Interest  on  Mortgage  Payahle 
Interest  on  Notes  Payable 
Loss  on  Bad  Debts 
Legal  Expenses  Extinguished 

Extraneous  expense  items  for  the 
year  ending  12/31/16 


Profit  and  Loss 
To  Surplus 

Net  Profit  for  the  year 
ending  12/31/16: 

Gross  profit  on  sales  of 

Manufactured  goods 
Extraneous  income 


Less  -  Selling  and 
general  ex- 
penses    $36,572.90 
Extraneous 
expenses     4,563.00 


$62,578.05 

460.85 

$63,038.90 


41,125.90 
$21,915.00 


173,070 


62,578 


280 
180 


36,672 


4,563 


21,913 


66 


173,070  55 


05 


85 
00 


90 


00 


00 


62.678 


460 


6,000 

10,660 

6,780 

2,684 

10,294 

300 

864 


1.800 
289 

1,564 
900 


21,913 


06 


85 


00 
00 
30 
00 
60 
00 
00 


00 
00 
00 
00 


00 


29 


Model  Exercise  P 


THE  BOSTON 
COMPARATIVE  BALANCE  SHEET 


ASSETS 

DEC. 31,  1916 

DEC. 31.  1915 

INCREASE 

DECREASE 

REAL  ESTATE  AND  EQUIPMENT: 

Land 

124,000 

00 

124,000 

00 

Buildings 

236,750 

00 

190,400 

00 

46.350 

00 

Trucks,  Wagons  and  Horses 

25,291 

60 

20,300 

00 

4,991 

60 

Furniture  and  Fixtures 

30,169 

50 

34,287 

95 

4.118 

45 

(xarage  and  Stable  Equipment 
Total  Heal  Estate  and 
Equipment 
GOODWILL 

SINKING  AND  RESERVE  FUNDS: 

3.682 

72 

2.983 

40 

699 

32 

419,893 

82 

371.971 

35 

47.922 

47 

250,000 

00 

250,000 

00 

With  Trustees  for  Hedemptioi 

of  Twenty  Year  65&  Gold 

Bonds 

44,968 

73 

36,941 

30 

8.027 

43 

Fund  for  Redemption  of  Ten 

Year  ^Jo  Debentxires 

36,738 

20 

25,789 

60 

10,948 

60 

Insurance  Fund 

Total  Sinking  and 
Reserve  Funds 

INVESTISNTS: 

15,640 

56 

12,987 

32 

2.653 

24 

97,347 

49 

75,718 

22 

21,629 

27 

Sec^lrities  Owned 

12,362 

50 

44,321 

97 

31,959 

47 

Vacant  Land  -  Cost  plus 

Accrued  Taxes 

Total  Investments 
CURRENT  ASSETS: 

62.550 

50 

61.780 

00 

770 

50 

74,913 

00 

106,101 

97 

31,188 

97 

Cash 

15,813 

46 

12,463 

19 

3.350 

27 

Accounts  Receivable 

247,932 

16 

228,113 

43 

19,818 

73 

Notes  Receivable 

4,176 

30 

5,207 

85 

1,031 

55 

Accrued  Interest  on  Notes 

"^Receivable 

98 

70 

126 

32 

27 

62 

Merchandise  on  Hand 

196,211 

88 

162p485 

85 

33,725 

,03 

Office  Supplies  on  Hand 

617 

29 

132 

65 

484 

64 

'  Garage  and  Stable  Supplies 

on  Hand 

Total  Cxirrent  Assets 
PREPAID  ASSETS: 

802 

37 

484 

21 

318 

16 

465,652 

16 

409,014 

50 

56,637 

66 

Taxes 

1,846 

50 

1,524 

90 

321 

60 

Insurance 

Total  Prepaid  Assets 

DEi'EHRED  CHARGES  TO  OPERATIONS: 

217 

30 

541 

65 

324 

35 

2,063 

80 

2,066 

55 

2 

75 

Bond  Discotmt  and  Expenses 

17,640 

00 

18,900 

00 

1.260 

00 

Organization  Expenses 

Total  Deferred  Charges 
to  Operations 

TOTAL  ASSETS 

14,000 

00 

17.500 

00 

3,500 

00 

31,640 

00 

36,400 

00 

4,760 

00 

1J341,510 

27 

1,251,272 

59 

90,237 

68 

30 


DRY  GOODS  COMPANY 
DECEMBER  31,    1916 


OAPITAX.   LIABILITI33  AST)  SUBPLUS 


iaC.51,    1916 


]3BC.gl,    1915 


IN0R7.ASW 


IISCHSAS2 


CAPITAI.  STOCK: 

Preferred  -  Authorized,   2500 

Shares  par  valoie  $100 
Common  -  Authorized.   6000 

Shares  par  value  |lOO 

Total  Capital  Stock 

VUSnSD   DEBT: 

Twenty  Year  6%  Sinking  Pond- 
Gold  Bonds,  Dae  January  1, 
1930: 

In  Hands  of  Public 
Held  hy  Sinking  Fund 
Trustees 
Ten  Year  4i^  Debentures, 
Due  July  1.  1921 

Total  Funded  Debt 

CURRENT  LIABILITIES: 
Accounts  Payable 
Notes  Payable 
Accrued  Interest  on  Bonds 
Accrued  Interest  on  Notes 

Payable 
Accrued  Salaries  and  TTages 
Dividends  on  Preferred  Stock 
Dividends  on  Common  Stock 
Unclaimed  Dividends  and 

Interest 

Total  Current  Liabilities 


RESERVES: 

Per  Depreciation  of  Buildings 
and  Equipment 

For  Loss  on  Bad  Accounts 

For  Sinking  Fund  for  Redemp- 
tion of  Twenty  Year  6^ 
Gold  Bonds 

For  Redemption  of  Ten  Year 
4^  Debentures 

For  Insurance 

Total  Reserves 

CAPITAL  SURPLUS  -  Proceeds  of 
Sale  of  Treasury  Stock 

UNDIVIDED  PROFITS 


TOTAL  CAPITAL,  LIABILITIES 
AND  SURPLUS 


150,000 
450,000 


600,000 


175.000 

25.000 

100.000 


300,000 


62,731 

25,700 

5,250 

296 

982 

3,000 

7,875 

281 


106,117 


45.260 
8,239 


44.968 

43,738 
19,621 


161,827 


130,000 


43,565 


1,341,510 


00 
00 


00 


00 
00 
00 


00 


49 

00 
00 

37 
50 
00 
00 

90 


26 


00 
64 


73 

20 
14 


71 


00 


30 


27 


150.000 
400,000 


550,000 


185,000 

15,000 

100.000 


300.000 


53,906 

37,689 

5.250 

468 
604 

3,000 
7,000 

231 


108,151 


36,410 
5,749 


36,941 

32,689 
15,129 


126,919 


130.000 


36.201 


1.251,272 


00 


50,000 


00 


00 
00 
00 


00 


73 
40 

00 

97 
47 

00 
00 

60 


17 


00 
37 


30 

26 
60 


52 


00 


90 


59 


50,000 


10,000 


8.824 

378 

875 
50 


00 


00 


10.000 


00 


00 


76 

03 
00 
30 


11.989 
172 


'8,850 
2,490 


8.027 

11,048 
4,491 


34,908 


7,363 


90,237 


00 
27 


43 

95 
64 


19 


40 


68 


2,033 


40 
60 


91 


31 


Model  Szareis*  J 


THE  B0ST05  CRT  GOODS  OOltPAlTr 


C(»IFASATITB  INCOME  ASD  EZFBNSB 

STATEMENT  -  DECEMBER  31.  191< 

\ 

MONTH  OF 

TWELVE  MONTHS 

SAME  PERIOD 

^ 

DECEMBER, 1916 

TEAR  TO  DATE 

LAST  YEAR 

INCREASE 

DECREASE 

^5; 

HET  SALES: 

Silk  Goods 

3,862 

93 

65,750 

62 

70,289 

40 

4.638 

78 

6.46 

Drees  Goods 

28,860 

79 

329,370 

59 

246,364 

32 

83,006 

27 

33.69 

Suitings 

14,203 

40 

197,832 

40 

140,117 

12 

67.715 

28 

41.19 

Prints  and  Ginghams 

17,761 

86 

230,914 

36 

155,419 

63 

75.494 

82 

48.57 

Linen  Goods 

14,273 

64 

191,213 

07 

210,268 

50 

19.056 

43 

9.06 

Flannels  and  Sheetings 
Total  Het  Sales 

COST  OF  GOODS  SOLD: 

17.632 

18 

226.378 

24 

262.796 

18 

26.417 

94 

10.45 

96.584 

70 

1,241,459 

27 

1,075,255 

06 

166,204 

22 

15.46 

Silk  Goods 

3,462 

91 

68,921 

37 

64,713 

54 

6.792 

17 

6.96 

Dress  Goods 

22,978 

64 

268,172 

98 

181,231 

87 

76,941 

11 

42.46 

Suitings 

8,939 

30 

122,783 

47 

82,169 

02 

40,614 

45 

49.43 

Prints  and  Ginghams 

12,707 

16 

172,934 

86 

121,805 

36 

51,129 

60 

41.91 

Linen  Goods 

10,346 

87 

135,832 

20 

158,268 

93 

22.436 

73 

14.18 

Flannels  and  Sheetings 

Total  Cost  of  Goods 
Sold 

GROSS  TRADING  PROFIT 

OPERATING  EXPENSES: 

13,049 

32 

172,344 

49 

180,118 

60 

7,774 

11 

4.32 

71,483 

20 

920,989 

37 

788,307 

32 

132,682 

05 

16.83 

26,101 

60 

320,469 

90 

286,947 

73 

33,522 

17 

11.68 

Buying 

625 

86 

7,491 

02 

7,016 

44 

474 

58 

6.76 

ReceiYing  cuid  Warehousing 

2,827 

79 

31,949 

06 

28,997 

29 

2,951 

77 

10.18 

Selling 

7,391 

16 

106,998 

18 

90,762 

29 

15,246 

89 

16.79  1 

Shipping 

2,696 

26 

32,274 

46 

26,370 

12 

6,904 

34 

22.39 

Credit  and  Collection 

847 

74 

8,379 

46 

8,296 

13 

83 

32 

1.01 

General  AdministratiTe 
Total  Operating  Expense 

NET  TRADING  PROFIT 
OTHER  INCOME: 

3.705 

47 

44,613 

48 

41,431 

01 

3.182 

47 

7.68 

8  17.994 

26 

230,705 

65 

202,863 

28 

27.842 

37 

12.72 

7,107 

24 

89,764 

26 

84,084 

45 

6,679 

80 

6.75 

Interest  on  Notes  and 

Accounts  Receivable 

210 

63 

1,762 

50 

986 

72 

775 

78 

78.62 

Cash  Discotmts  oa 

Purchases 

518 

04 

7,329 

60 

6,173 

61 

1.156 

09 

18.73 

Income  on  Securities 

Owned 

Total  Other  Income 

GROSS  INCOME 
OTHER  CHARGES: 

1,462 

50 

3,200 

00 

2,850 

00 

350 

00 

12.28 

2,191 

17 

12,292 

10 

10,010 

23 

2,281 

87 

22.79 

9,298 

41 

102,066 

35 

94,094 

68 

7.961 

67 

8.46 

Interest  on  65S  Sinking 

Fund  Gold  Bonds 

2,000 

00 

12,000 

00 

12,000 

00 

Interest  on  4^ 

Debentures 

375 

00 

4,600 

00 

4,500 

00 

Interest  on  Notes  Payabl* 

160 

76 

2,621 

70 

3,263 

75 

642 

06 

15.32 

Loss  on  Bad  Accounts 

602 

46 

6,734 

18 

4,189 

60 

2,644 

58 

60.74 

Proportion  of  Bond  Dis- 

coxmt  and  Expenses 

106 

00 

1,260 

00 

1,260 

00 

Proportion  of  Organlzati( 

n 

Expenses 

Total  Other  Charges 

HET  PROFIT 

291 

67 

3,500 

00 

3,500 

00 

3,534 

87 

30,615 

88 

28,713 

36 

1,902 

53 

6.63 

5.763 

64 

71.440 

47 

66.381 

33 

6.059 

14 

9.27 

32 


Model  Bzercise  F 


THE  BOSTOIT  DRY  GOODS  COMPAMY 
COMPARATIVE  ANALYSIS  OF  UHDIVIDED  PROFITS  ACCOimT.  DECEMBER  31.  1916 


CREDITS: 

Undivided  Profits  at 

Beginning  of  Year 
Net  Profit  per  Income 

and  Expense  Statement 
Profit  on  Sale  of 

Securities 

Total  Credits 

CHARGES: 

Preferred  Stock 

Dividends,  6% 
Common  Stock  Dividends,  7% 
Reserve  for  Sinking  Fxuid 

for  Redemption  of  6% 

.Gold  Bonds 
Reserve  for  Redemption  of 

4^  De'bentures 
Adjustment  of  Inventory 

Total  Charges 
NET  UNDIVIDED  PROFITS 


DBC.31,*1916 


36.201 

71.440 

4t\  289 


111,931 


12,000 
31,500 


6.666 

10.000 
8.200 


68,366 


43,565 


90 
47 
60 


97 


00 
00 


67 

00 
00 


67 


30 


DEC. 31,  1915 


40.537 
65.381 


105,918 


12,000 
28  000 


6,666 

8,600 
14,550 


69,716 


36,201 


24 

33 


57 


00 
00 


67 

00 
00 


67. 


90 


INCREASE 


6,059 
4,289 


6,013 


3.500 


1.500 


7,363 


14 
60 


40 


00 


00 


40 


DECREASE 


4,335 


6,350 


1,350 


34 


00 


00 


Model  Ezeroise  7 


IEEE  BOSTON  DRY  GOODS  COMPANY 


C(»CPARATIVE  ANALYSIS  OF  GARAGE  AND  STABLE  EXPENSES,  DECEMBER  31.  1916 


Salaries  of  Drivers 
and  Stablemen 

Fodder  and  Stable 
Supplies 

Garage  Supplies 

Taxes,  Insurance, 
and  Depreciation 
on  Truoks.  Wagons 
and  Horses 

Repairs  to  Truoka 
and  Wagons 

Depreciation  on 
Squipnant 

Rent  -  Kaintenanoe 
of  Oarage  and 
Stable  Building, 

TOTAL  GARAGE  AND 
STABLE  EXPENSES 

Distribution: 
Reeeiving  and 
W^ehoxLSing 
Expenses  35^ 
SMpping  Ex- 
penses   65^ 

Total,  as 
above 


MONTH  OF 
DECEMBER. 1916 


1,368 

132 
297 


136 


541 


2.476 


866 
1.609 


2.476 


30 

90 
65 


84 


87 


46 


41 

06 


46 


TWELVE  MONTHS 
YEAR  TO  DATS 


13,783 

2.168 
£.934 


3» 692400 
1.010 
368 


6.448 


29,406 


10.292 
19.114 


29»406 


49 

79 
62 


SAME  FERlbD 
LAST  YEAR 


60 
27 


86 


62 


28 
24 


10,201 

3,720 
1,208 


2.186 
701 


66 

06 
41 


72 
19 


298  34 


4.470 


22,786 


7.976 
14,811 


22.786 


10 


47 


26 

21 


47 


INCREASE 


3.581 
1,726 

1.506 

309 

69 

978 


4,730 


06 


decrease;  I' 

D] 


1.661 


27 


36.11 


41.70 
IL42.86 


68.84 
44.11 
23.44 

21.89 


20.76 


33 


Uodel  Bzercise  F 


THE  BOSTON  DRY  GOODS  COIIPAMY 


COrgARATIVE  AHALY3IS  OF  COST  OF  MAIHTEMAITCE  OF  REAL  ESTATE.  DECEMBER  gl.  1916 


MONTH  OF 
[)ECEiyiBER,1916 


MAIN  BUILDING; 
Taxes 
Insurance 
Depreciation 
Repairs  to  Building 
Janitors  and  Watchman 
Heat,  Light  and 

Power  -  Fuel 
Heat,  Light  and  Power  ■ 
Engineer  and  Fireman 
Miscellaneous  Supplies 
Total  Cost  of  Mainte- 
nance of  Main 
Building 

Distribution: 

Buying  Expenses  5% 
Selling  Expenses  67^ 
Shipping  Expenses  6% 
Credit  and  Col- 
lection Expenses  5% 
General  Administra- 
tive Expenses   15^ 

Total,  as  above 


WAREHOUSE : 
Taxes 
InsTiranoe 
Depreciation 
Repairs  to  Building 
Heat  and  Light  - 
Purchased 

Total  Cost  of  Main- 
tenance of  Ware- 
house 
Chargeable  to  Receiving 
and  Warehousing 
Expenses 

GARAGE  AND  STABLE; 
Taxes 
Insurance 
Depreciation 
Repairs  to  Building 
Heat  and  Light  - 
Purchased 

Total  Cost  of  Main- 
tenance of  Garage 
and  Stable 

Chargeable  to  Garage 
and  Stable  Expenses 

iK)TAL  COST  OP  MAINTENANCE 
OF  REAL  ESTATE 


375 
66 

270 
201 
536 

375 

266 
69 


2.160 


108 

1,447 

172 

108 

324 


2,160 


126  00 

40  00 


00 
00 
83 
34 
97 

00 

67 
48 


29 


01 
40 
82 

03 

06 


29 


166 
201 

132 


666 


41 
17 

300 
50 

132 


641 


3.368 


67 
83 

41 


TWELVE  MONTHS 
YEAR  TO  DATE 


91 


67 
11 
00 
24 

86 


87 


07 


4,500 
780 
3,250 
1,846 
4,987 

2,540 

3,200 
1,016 


22,120 


1,106 

14,820 

1,769 

1,106 

3.318 


22.120 


00 
00 
00 
72 
36 

00 

00 
78 


86 


04 
98 
67 

04 

13 


86 


1,500 

480 

2,000 

1.014 

1,267 


6,261 


500 

206 

3,600 

217 

924 


5,448 


33,831 


00 
00 
00 
56 

29 


85 


00 
50 
00 
49 

86 


86 


66 


SAME  PERIOD 
LAST  YEAR 


4,275 

780 
3,250 
2,719 
4,480 

1,470 

3,200 
731 


20,906 


1,045 

14,007 

1.672 

1.045 

3,135 


20,906 


1,426 
480 

2,000 
724 

941 


00 
00 
00 
60 
27 

00 

00 
46 


33 


32 

24 
61 

32 

94 


33 


6,671 


230 

79 

2,480 

962 

718 


4,470 


30,948 


00 
00 
00 
86 

73 


INCREASE 


225 

507 
1,070 

285 


1.214 


59 


00 
30 
00 
31 

49 


10 


02 


76 

289 
326 


690 


270 

127 

1.120 


206 


978 


2,883  64 


53 


26 


37 


76 


DECREASE 


872 


88 


744 


82 


INC 


6.26 


32.10 
11.32 

72.79 


39.01 


6.81 


5.26 

39.97 
34.67 


12.39 


L17.39 

160  40 

45.16 

77.40 

28.72 


21.89 


9.32 


34 


XHB  BOSTOB  ]£7  OOODS  OOICPAST 


OOMPARATIVE  AHAI.Y8IS  07 

OPERATING  EZPEHSES.  SBCBCBBR  81, 

1916 

MONTH  OF 

TWBL7E  MONTHS 

SAUi;  PERIOD 

=^ 

[BCRUBER,  1916 

TSAR  TO  DATE 

LAST  YEAR 

INCREASE 

IBCREASB 

DEC. 

BUYING: 

""^ 

Salaries  of  Prurchaslng 

Agent  and  AeslstantB 

458 

33 

5.600 

00 

5.100 

00 

400 

00 

7.84 

Stationery  and  Supplies 

Z4 

56 

496 

40 

627 

63 

81 

23 

6.91 

Taxes.  Insiiranoe  and  Copre-  . 

elation  on  Offiee  Pumitnre 

14 

63 

175 

60 

176 

60 

Bent  -  6%  of  Uaintenanoe  of 

Main  Building 

108 

01 

1,106 

04 

1,045 

32 

60 

72 

6.71 

UisoellaneouB  Expenses 
Total  Buying  Expense s 

HBOBIVIHG  AlTD  fAHEHOUSING: 

10 

33 

212 

98 

167 

89 

45 

09 

26.74 

626 

86 

7,491 

02 

7,016 

44 

474 

58 

6.76 

Freight  and  Express  Inward 

501 

93 

7,683 

12 

8,162 

47 

479 

36 

5.87 

Hauling  Inward  -  3656  of  Garage 

and  Stable  Expenses 

866 

41 

10,292 

28 

7,975 

26 

2,317 

02 

29.06 

Salaries  of  RecoiTiag  Clerks 

and  Varehousemen 

647 

00 

6,136 

50 

5,571 

00 

565 

50 

10.15 

Stationery  and  Supplies 

19 

53 

210 

47 

375 

00 

164 

53 

43.34 

Taxes,  Insuranci  and  Depre- 

ciation on  Furniture  and 

Fixtures 

29 

50 

354 

04 

289 

60 

64 

44 

E2.25 

Warehouse  Power  -  Purchased 

76 

89 

837 

40 

910 

53 

73 

13 

8.03 

Rent  -  Maintenance  of  Warehouse 

665 

91 

6,261 

85 

5,571 

59 

690 

26 

12.39 

Miscellaneous  Expenses 

Total  BeceiTinA  and 
Warehousing  Expenses 

aSLLIHO: 

20 

62 

173 

40 

141 

84 

31 

56 

22.32 

2,827 

79 

31,949 

06 

28.997 

29 

2,951 

77 

10.18 

Adyertising  -  Newspapers 

204 

25 

12,981 

40 

9,362 

79 

3,618 

61 

38.63 

Advertising  -  Trade  Papers 

629 

50 

9,301 

62 

7,793 

16 

1.508 

47 

19.36 

Samples,  Catalogs  and  Pamphlets 

^,800 

00 

4,321 

60 

521 

60 

12.07 

Salaries  of  SeuLes  Manager  and 

Assistants 

800 

00 

9,600 

00 

8,100 

00 

1,500 

00 

18.52 

Salaries  of  Salesmen 

2,190 

50 

25,173 

40 

20,326 

75 

4,846 

65 

23.84 

Salesmen's  Expanses 

1,053 

19 

16,495 

72 

13,284 

51 

3,211 

21 

24.17 

Salaries  of  Store  Clerks 

856 

73 

11,242 

59 

10,963 

84 

278 

75 

2.64 

Stationery  and  Supplies 

59 

28 

702 

50 

664 

14 

38 

36 

5.78 

Taxes  and  Insurance  on  Stock 

73 

83 

886 

00 

793 

40 

92 

60 

11.67 

Taxes,  Insurance  and  Depre- 

ciation on  Furniture  and 

Fixtures 

41 

89 

502 

70 

502 

70 

Rent  -  67?5  of  Maintenance  of 

Main  Building 

1,447 

40 

14,820 

98 

14,007 

24 

813 

74 

5.81 

Miscellaneous  Expenses 
Total  Selling  Expenses 
SHIPPING: 

34 

58 

491 

27 

632 

17 

140 

90 

22.29 

7,391 

15 

105,998 

18 

90,752 

29 

15.245 

89 

16.79 

Freight  and  Express  Outward 

318 

72 

5,319 

o4 

4.117 

27 

1.202 

37 

28.96 

Hauling  Outward  -  65'^  of 

Garage  and  Stable  Expenses 

1,609 

05 

19,114 

24 

14.811 

21 

4.303 

03 

29.05 

Salaries  of  Shipping  Clerks 

and  Packers 

400 

00 

4,800 

00 

4.650 

00 

150 

00 

3.23 

Packing  Supplies 

74 

19 

942 

73 

714 

86 

227 

87 

31.86 

Stationery 

93 

37 

138 

15 

44 

78 

32.41 

Taxes,  Insurance  and  Depre- 

ciation on  Furniture  and 

Fixtures 

16 

00 

192 

00 

176 

50 

15 

50 

8.78 

Rent  -  855  of  Maintenance  of 

Main  Building 

172 

82' 

1,769 

67 

1.672 

51 

97 

16 

5.80 

Miscellaneous  Expenses 
Total  Shipping  Expenses 
CREDIT  AND  COLLECTION: 

5 

47 

42 

81 

89 

62 

46 

81 

52.23 

2,596 

25 

32,274 

46 

26.370 

12 

5.904 

34 

22.39 

Salaries  of  Credit  Manager 

and  Assistants 

416 

67 

5,000 

00 

4,500 

00 

500 

00 

11.11 

Collection  Expenses 

34 

19 

417 

62 

675 

93 

268 

31 

38.22 

Charges  on  Collections  Made 

by  Banks 

20 

87 

491 

00 

514 

40 

23 

40 

4.55 

Credit  References 

4 

17 

50 

00 

50 

00 

Legal  Fees 

176 

30 

542 

25 

737 

89 

195 

64 

26.51 

Stationery  and  Supplies 

34 

26 

296 

73 

321 

51 

24 

78 

7.71 

Taxes,  Insurance  and  Depre- 

ciation on  Office  Furniture 

12 

55 

150 

62 

150 

62 

■" 

Rent  -  6%  of  Maintenance  of 

Main  Building 

108 

01 

1,106 

04 

1,045 

32 

60 

72 

6.81 

MlBoellaneous  Expenses 

Total  Credit  and 
Collection  Expenses 

GBHSRAl  AUtlNI  STRATI VB: 

30 

72 

325 

19 

300 

46 

24 

73 

8.23 

847 

74 

8,379 

45 

8,296 

13 

83 

32 

1.01 

Salaries  of  Officers 

1,676 

00 

20,100 

00 

20,100 

00 

Salaries  of  General  Office 

Clerks 

946 

80  , 
28  ' 

11,976 

80 

9,821 

45 

2,155 

35 

21.95 

Of fleers'  Expenses 

164 

1,931 

72 

1,276 

26 

655 

47 

51.36 

General  Office  Stationery  and 

Supplies 

182 

31 

2,360 

49 

2,693 

76 

333 

27 

12.38 

Postage 

192 

19 

2,215 

00 

1.906 

48 

308 

62 

16.18 

Telephone  and  Telegrams 

9 

47 

184 

62 

247 

13 

62 

61 

25.29 

loe,  Water  and  Towel  Supply 

10 

00 

160 

00 

173 

40 

13 

40 

7.73 

Carfares 

19 

65 

247 

10 

314 

50 

67 

40 

21.43 

Taxes,  Insurance  and  Depre- 

ciation on  Office  Furniture 

and  Fixtures 

75 

00 

900 

00 

900 

00 

Rent  -  155?  of  Maintenance  of 

Main  Building 

324 

06 

3,318 

13 

3.135 

94 

182 

19 

5.81 

Miscellaneous  Expenses 

Total  General  AdministratlTe 
Expenses 

TOTAL  OPERATING  EXPENSES 

106 

72 

1,219 

62 

862 

10 

357 

52 

41.47 

5,705 

47 

44,613 

48 

41,431 

01 

3.182 

47 

7.68 

17,994 

26 

230,705 

65 

202^863 

26 

27.842 

37 



13.72 

PART  I 
PROBLEMS  IN  SINGLE  ENTRY 

October  1,  1915 

1.  J.  A.  Anderson  has  this  day  purchased  the  stock  and  other  assets  of  the  hardware  and  plumbing 
business  of  C.  J.  Lee,  205  Main  St.,  Taunton,  Mass.,  paying  therefor  $10,262.50  in  cash.  The  accounts 
receivable  as  of  October  1,  1915,  are  to  be  collected  by  Mr.  Lee  and  converted  to  his  own  use.  The 
liabilities  of  the  business  are  to  be  assumed  by  Mr.  Anderson. 

The  assets  purchased  by  Anderson  are  as  follows : 

Hardware  and  plumbing  supplies $12,925.00 

Horse  and  wagon 400.00 

Store  fixtures   550.00    $13,875.00 

The  liabilities  are  as  follows : 

Due  to  Providence  Mfg.  Co $1,726.40 

Due  to  J.  B.  Hunter  &  Co 776.90 

Due  to  National  Plumbing  Supplies  Co 926.20 

Accrued  taxes 183.00      $3,612.50 


Mr.  Anderson  has  deposited  his  check  for  $6,000.00  in  the  Taunton  National  Bank  as  an  additional 
investment  in  the  business. 

The  books  are  to  be  kept  by  single  entry,  and  consist  of  a  Purchase  Book,  Sales  Book,  Cash  Book, 
Journal  and  Ledger.  Accounts  are  to  be  kept  in  the  ledger  with  customers,  creditors,  the  proprietor, 
expense  and  contracts. 

October  2 

Bought  for  cash  from  the  Symonds  Manufacturing  Co.,  merchandise   $762.50 

Bought  from  the  Ames  Plough  Co.,  terms  2% — 10  days,  net — 30  days,  merchandise 2,500.00 

October  3 

Bought  of  the  Chilson  Stove  Co.,  terms,  net — 60  days,  merchandise  as  per  invoice 689.50 

Paid  cash  to  J.  M.  Rudd  for  counters,  shelves,  etc.,  for  store 300.00 

Paid  cash  for  repairs  to  wagon . .  .^ 15.00 

October  5 
Paid  cash  for  the  Ames  Plough  Company's  invoice  of  October  2  less  2%  cash  discount. 
Cash  sales  of  merchandise 360.00 

October  8 

Sold  J.  W.  Foster,  terms  2% — 10  days,  net  60  days,  merchandise  -. 2,760.00 

Sold  A.  B.  Daniels,  net  60  days,  merchandise 822.90 

Cash  sales  240.67 

October  10 
Received  cash  from  J.  W.  Foster  for  bill  of  Oct  8,  less  2%  cash  discount. 

Cash  sales   200.00 

Entered  into  a  contract  with  B.  A.  Smith  to  supply  and   instal   the   plumbing    for   a    residence 

being  erected  by  him.     Contract  price,  $525.00. 
Bought  of  the  National  Plumbing  Supplies  Co.  merchandise  to  be  used  on  the  above  contract 

(Charge  Contract  No.  1) 127.50 

Paid  salaries  and  wages  to  date 165.60 

Sold  Calvin  Brown,  on  account,  merchandise  as  per  bill   1,260.50 

Contracted  with  J.  W.  Folsom  to  put  a  hot  water  heater  into  his  house  for  $550.00. 
Bought  for  cash  from  the  Chilson  Stove  Co.  merchandise  and  supplies  for  the  above  con- 
tract.    (Charge  Contract  No.  2) 310.00 

Cash  sales  560.57 

36 


October  12 
Received  from  A.  B.  Daniels  cash  on  account  of  bill  of  October  8 $500.00 

October  13 
Cash  sales  192.00 

October  15 

Sold  Williams  &  Everett,  terms  2% — 10  days,  net  30  days,  merchandise 762.90 

Paid  cash  for  board  of  horse 15.00 

Took  merchandise  from  stock  on  account  of  Contract  No.  1 276.00 

October  16 

Received  from  Calvin  Brown,  on  account,  a  30-day  note  ' 500.00 

Contracted  vi^ith  Aaron  Sleeper  to  do  the  plumbing  in  his  new  house  for  $400. 

Bought  on  account  from  National  Plumbing  Supplies  Co.,  for  Contract  No.  3,  merchandise 

•  as  per  invoice 205.00 

October  17 

Sold  C.  E.  Watson,  net  60  days,  merchandise  as  per  bill   635.00 

Paid  cash  for  stationery 72.50 

Paid  salaries  and  wages  to  date : 

Store  clerks , $135.00 

Contract  No.  1 50.00 

Contract  No.  2 35.00 

220.00 

October  19 

Sold  Calvin  Brown,  on  account,  merchandise 1,267.40 

Cash  sales 210.00 

Paid  tax  bill  of  October  1 183.00 

October  20 

Mr.  Anderson  withdrew  for  personal  use,  cash 175.00 

Contract  No.  1  is  finished.    Charge  B.  A.  Smith  for  the  contract  price  $525;  also  credit  Con- 
tract No.  1  for  the  same  amount. 

October  22 

Purchased  from  the  Providence  Mfg.  Co.  merchandise  as  per  invoice,  terms,  net  30  days 2,607.00 

Received  from  B.  A.  Smith,  on  account,  cash 200.00 

October  23 

Contracted  with  the  City  of  Taunton  to  furnish  the  plumbing    and    heating    apparatus    for 
schoolhouse  No.  4.    Contract  price,  $3,100.00. 

Purchased  from  the  National  Plumbing  Supplies  Co.  materials  for  the  above 1,700.00 

Cash  sales  310.50 

October  24 

Purchased  from  the  Stanley  Heating  Co.  for  Contract   No.   4  merchandise,   terms,   net — 

30  days 500.00 

Took  materials  from  stock  for  Contract  No.  4 160.00 

Paid  salaries  and  wages  as  follows : 

Store  salaries   '. $140.00 

Contract  No.  2 30.00 

Contract  No.  3 57.80 

Contract  No.  4 60.00         287.80 

37 


October  26 

Contract  No.  2  is  finished.    Charge  Mr.  Folsom  for  the  contract  price  and  credit  Contract 
No.  2  for  same  amount. 

Paid  Stanley  Heating  Co.  for  bill  of  October  24 $500.00 

Paid  Providence  Mfg.  Co.,  on  account 1,500.00 

Paid  National  Plumbing  Supplies  Co.,  on  account 1,000.00 

October  27 

Sold  Williams  and  Everett,  on  account,  merchandise 560.90 

Received  from  J.  W.  Folsom  cash  in  full 350.00 

Cash  sales  169.40 

October  28 

Paid  wages  on  account  of  Contract  No.  3 25.00 

Contract  No.  3  is  finished.    Make  the  proper  entries. 

Cash  sales 120.42 

October  29      • 

Sold  B.  A.  Smith,  2% — 10  days,  net  30  days,  merchandise   260.00 

October  31 

Paid  rent  for  October 275.00 

Paid  telephone  and  lighting  bills 12.50 

Cash  sales  267.35 

Paid  wages  and  salaries : 

Store  wages    $147.00 

Contract  No.  4 42.00  189.00 

Mr.  Anderson  withdrew  for  personal  expenses 60.00 

Inventories — October  31,  1914: 

Merchandise  on  hand  (cost) 10,260.40 

Unfinished  contract  (cost  to  date) 2,462.00 

Horse  and  wagon 375.00 

Store  fixtures   ." 800.00 

REQUIRED : 

a.  Write  up  the  books  of  original  entry,  Purchase  Book,  Sales  Book,  Cash  Book  and  Journal. 
Foot  and  rule  the  various  books  as  of  October  31. 

b.  Post  to  the  Ledger;  balance  the  various  ledger  accounts  and  draw  oflf  a  summary  of  ledger 
balances. 

c.  Prove  the  correctness  of  the  posting  to  the  ledger. 

d.  Write  up  a  Statement  of  Assets  and  Liabilities  showing  the  profit  or  loss  for  the  month. 

e.  Make  and  post  a  journal  entry  crediting  or  charging  Anderson's  personal  account  for  the  profit 
or  loss,  as  the  case  may  be;  make  and  post  journal  entries,  closing  out  the  Expense  account  and  the 
finished  Contract  account.  (The  diflFerence  between  the  balances  of  the  proprietor's  capital  account 
and  his  personal  account  should  agree  with  the  net  worth  as  shown  on.  the  Statement  of  Assets  and 
Liabilities.) 

f.  Because  of  the  increasing  volume  of  his  business,  Mr.  Anderson  decides  to  change  his  books 
from  single  entry  to  double  entry.     Make  and  post  the  proper  journal  entry. 

Provided  the  accounts  have  been  properly  kept  it  is  not  a  difficult  matter  to  change  the  books 
from  a  single  entry  to  a  double  entry  form.    This  may  be  done  as  follows: 

Make  a  journal  entry  in  double  entry  form,  listing  all  the  assets  as  debits  and  all  the  liabilities  as 
credits.     (The  assets  and  liabilities  may  be  taken  from  the  Statement  of  Assets  and  Liabilities.) 

To  the  liabilities  add  the  proprietor's  net  worth,  thus  balancing  the  entry  and  making  an  equal 

38 


number  of  debits  and  credits.  Place  a  check  mark  in  the  folio  column  against  the  names  of  each 
account  that  is  already  on  the  books  and  proceed  to  post  the  unchecked  accounts,  opening  an  account 
in  the  ledger  with  each  asset  and  liability  which  does  not  already  appear  there.  The  books  are  now  in 
double  entry  form. 

g.     Draw  off  a  trial  balance  from  the  ledger  to  prove  that  it  is  in  balance. 

NOTE 

Use  page  1  of  a  sheet  of  journal  paper  for  the  Purchase  Book. 

Use  pages  2  and  3  of  the  same  sheet  for  the  Cash  Book. 

Use  page  4  for  the  Sales  Book. 

Use  pages  1  and  2  of  another  sheet  of  journal  paper  for  the  Journal. 

Use  page  3  of  this  sheet  for  the  Summary  of  Ledger  Balances  and  the  Proof  of  Posting. 

Use  page  4  of  this  sheet  for  the  Statement  of  Assets  and  Liabilities. 

Place  the  final  Trial  Balance  on  a  separate  sheet  of  paper. 

2.  William  Sprague  began  business  January  1,  1915,  with  assets  and  liabilities  consisting  of  ac- 
counts receivable,  $8,000;  accounts  payable,  $4,000;  merchandise,  $5,000;  cash,  $1,000.  On  June  30, 
1915,  his  assets  and  liabilities  comprised  cash,  $100;  accounts  payable,  $7,000;  notes  payable,  $1,000; 
furniture  and  fixtures,  $800;  merchandise,  $12,000;  accounts  receivable,  $8,000;  office  supplies,  $100.  Dur- 
ing the  period  Sprague  had  invested  $2,000  additional  and  had  withdrawn  at  different  times  $1,000,  $600 
and  $1,400.    His  books  are  kept  by  single  entry. 

Prepare  a  statement  of  assets  and  liabilities  as  of  June  30,  supplemented  by  a  statement  showing 
what  the  net  profit  or  loss  has  been  for  the  six  months.  Make  entry  or  entries  which  will  result  in 
changing  the  books  to  double  entry,  assuming  that  the  same  ledger  is  to  be  continued. 

3.  Smith  &  Murray  have  been  doing  business  as  equal  partners  and  have  kept  their  books  by 
single  entry.  They  wish  to  admit  Davis  as  a  partner  and  have  their  books  kept  by  double  entry.  Their 
books  and  inventory  taken  show  the  following  assets  and  liabilities:  Merchandise,  $9,241;  cash,  $850; 
real  estate,  $3,000;  accounts  receivable,  $6,941;  store  fixtures,  $571.  Smith's  investment  account  cred- 
it, $6,400;  Murray's  investment  account  credit,  $5,390;  accounts  payable,  $4,175;  bills  payable,  $975. 

Prepare  statement  of  resources  and  liabilities  and  find  each  partner's  present  worth,  after  which 
make  opening  entry  for  the  double  entry  set  of  books.  Davis  is  admitted  and  invests  cash,  $3,000; 
merchandise,  $2,000;  bills  receivable,  $1,500.     Make  opening  entry  for  Davis. 

4.  On  January  1,  1910,  Robert  A.  Grant  began  business  as  a  retail  dry  goods  merchant.  His 
capital  at  the  time  consisted  of  merchandise,  $12,300;  cash,  $1,150;  furniture  and  fixtures,  $600. 

He  sold  most  of  his  goods  for  cash,  although  credit  was  extended  in  certain  cases. 

The  books  were  kept  by  single  entry  and  consisted  of  a  ledger,  journal  and  cash  book. 

At  the  end  of  three  months  Mr.  Grant  desired  to  ascertain  whether  he  was  making  any  money. 
The  clerks  were  set  to  work  taking  inventory,  and  the  bookkeeper  was  instructed  to  prepare  a  list  of 
outstanding  accounts  receivable  and  payable.     This  produced  the  following  results : 

Merchandise  on  hand $24,062.62 

Accounts  receivable 2,165.74 

Accounts  payable    15,203.21 

Cash  in  bank 2,572.43 

Cash  in  drawer .^.  224.17 

Paid  invoices  showed  purchases  of  office  equipment  during  the  period  amounting  to  $275. 

Invoices  have  been  received  and  entered  on  the  books  covering  the  purchase  of  goods  amounting 
to  $375.20,  which  goods  have  not  yet  arrived. 

Feeling  the  need  of  more  working  capital,  Mr.  Grant  sold  on  February  10  certain  bonds  which  he 
had  been  holding  as   investments,  realizing  thereon  $1,250,  which  amount  was  placed  in  the  business. 

Prepare  (a)  statement  or  statements  showing  the  resources  and  liabilities  and  the  net  profit  or  loss 
for  the  period ;  (b)  entry  to  accomplish  the  opening  of  a  double  entry  set  of  books. 

5.  W.  A.  Wallace  and  A.  M.  Adams  are  equal  partners.  Adams  wishes  to  retire  from  the  firm 
and  an  adjustment  is  required.  Wallace's  capital  account  shows  a  credit  balance  of  $2,000  and  Adams' 
a  credit  of  $2,700.  They  agree  to  the  following  division  of  the  assets :  Adams  takes  cash,  $4,400,  and 
notes  receivable,  $3,700.     Wallace  takes  the  merchandise  inventoried  at  $5,600,  personal  accounts  re- 

39 


ceivable,  $6,300,  on  which  he  is  allowed  a  discount  of  10%  for  bad  debts,  and  he  assumes  the  accounts 
payable,  $1,100,  and  notes  outstanding,  $2,200.  Arrange  the  above  accounts  in  the  form  of  a  trial  bal- 
ance, find  the  net  gain  or  loss,  and  on  the  above  basis  of  division  of  assets  find  which  partner  is  in- 
debted to  the  other,  and  how  much. 

6.  (From  Illinois  C.  P.  A.  Examination.) 

A  "single  entry"  set  of  books  for  1912  are  sent  to  you  with  an  order  to  prepare  a  profit  and  loss 
statement  for  the  year  and  a  balance  sheet  at  December  31.    The  starting  capital  was  $34,500. 

The  accounts  receivable        Jan.  1 $26,500.00  Dec.  31 $44,000.00 

The  accounts  payable            Jan.  1 7,500.00  Dec.  31 9,750.00 

The  merchandise                    Jan.  1 8,500.00  Dec.  31 9,500.00 

The  plant  and  machinery      Jan.  1 10,000.00  Dec.  31 10,000.00 

The  furniture  and  fixtures    Jan.  1 700.00  Dec.  31 700.00 

A  summary  of  cash  book  for  the  year  shows  as  follows: 

Received : 

Accounts  receivable   $30,000.00 

Capital  paid  in 2,500.00 

Disbursed : 

Bank  overdraft  Jan.  1 3,700.00 

Accounts  payable    12,500.00 

General  expense 5,000.00 

Wages 7,750.00 

Personal  account 1,500.00 

Leaving  a  Bank  Account  of  $2,000.00,  and  Currency  on  hand,  $50.00. 

Provide  5%  interest  on  capital,  disregarding  additions  during  the  year  and  personal  drafts,  deduct- 
ing 10%  for  plant  and  machinery  depreciation,  5%  for  furniture  and  fixtures,  and  5%  for  bad  debt 
reserve. 

7.  (From  the  Ohio  C.  P.  A.  Examination.) 

The  books  of  the  Butter,  Egg  &  Cheese  Company,  with  an  authorized  and  outstanding  capital 
stock  issue  of  $25,000.00,  are  kept  by  single  entry. 

It  annually  inventories  all  of  its  assets  and  liabilities  and  from  such  inventory  prepares  a  financial 
statement.    At  December  31,  1913,  this  inventory  is  as  follows: 

Office  cash $1,584.00 

Balance  bank  A 10,824.00 

Accounts  receivable    29,521.00 

Ten  shares  stock  in  competing  company 1,000.00 

Plant  and  equipment 64,938.00 

Merchandise  inventory 21,737.00 

Prepaid  expenses  5,081.00 

Overdraft  bank  B 5,003.00 

Accounts  payable    ! 19,747.00 

Mortgage  payable 25,000.00 

Notes  payable 20,000.00 

From  a  comparison  of  the  financial  statements  at  the  beginning  and  end  of  year  you  find  that 
the  above  item  of  plant  and  equipment  is  stated  in  an  amount  less  by  $11,460.00  than  it  was  at  the  be- 
ginning of  the  year,  plus  additions  during  the  year. 

The  financial  statement  for  the  beginning  of  year  showed  a  surplus  of  $35,703.00. 

From  your  analysis  of  the  disbursements  and  unpaid  accounts  payable  at  beginning  and  end  of 
year  you  find  a  total  of  purchases  amounting  to  $661,910.00  and  expenses  for  salaries,  wages,  supplies, 
repairs,  etc.,  amounting  to  $120,115.00. 

40 


The  purchases,  however,  included  $450.00  paid  out  for  John  Smith,  an  employee,  for  which  he 
had  not  reimbursed  the  company,  and  the  total  expenses  of  $120,115.00  included  $250.00  in  the  hands 
of  a  buyer  as  a  working  fund. 

The  inventory  of  merchandise  at  the  beginning  of  the  year  was  $18,125.00  and  of  prepaid  expense 
was  $2,653.00. 

There  was  canceled  on  the  customers'  ledger  during  the  year  $3,206.00  of  uncollectible  accounts. 

There  was  paid  for  interest  and  discount  on  notes  payable  $1,061.00  and  for  interest  on  mortgage 
$1,500.00. 

A  10  per  cent,  dividend  was  declared,  but  not  paid. 

From  the  foregoing  prepare : 

a.  A  balance  sheet  as  at  December  31,  1913. 

b.  A  profit  and  loss  statement  exhibiting  net  sales,  cost  of  sales  and  gross  and  net  profit  for  the 
year. 

8.     (From  Illinois  C.  P.  A.  Examination.) 

A  dispute  arises  between  two  partners  carrying  on  a  retail  business  under  the  name  of  Levy  & 
Mayer,  and  you  are  called  in  to  adjust  the  accounts  between  them,  when  you  find  the  following  con- 
ditions : 

a.  The  books  have  been  kept  on  single  entry  and  it  is  impracticable  to  go  over  the  accounts  in 
sufficient  detail  to  complete  the  double  entry, 

b.  It  is  three  years  since  the  firm  has  had  an  accounting,  when  a  Balance  Sheet  was  prepared  (copy 
of  which  is  handed  to  you),  and  contains  the  following: 

Assets— December  31,  1908: 

Store  fixtures   , $15,000.00 

Leasehold,  (5  years  to  run) 5,000.00 

Merchandise   on   hand 35,000.00 

Customers'  accounts 10,000.00 

Cash  on  hand  and  in  bank 12,500.00 

Prepaid  expenses 2,500.00 

$80,000.00 
Liabilities : 

Accounts  payable    $15,000.00 

A.  B.  Levy— special  loan 20,000.00 

A.  B.  Levy— capital  account , 30,000.00 

W.  K.  Mayer— capital  account 15,000.00 

$80,000.00 

c.  You  are  informed  that  Mr..  Levy's  loan  bears  interest  at  6%  per  annum,  and  that  the  Capital 
Accounts  are  to  be  credited  with  interest  at  5%.  Also  that  Mr.  Mayer,  who  had  active  charge  of  the 
business,  is  to  receive  20%  of  the  profits  in  lieu  of  other  salary,  the  remaining  80%  of  the  profits  to  be 
divided  between  the  partners  in  proportion  to  the  capital  contributed. 

d.  The  inventory  as  taken  as  at  December  31,  1911,  was  as  follows: 

Merchandise : 

Good  condition $50,000.00 

Old  styles  and  partly  soiled 7,500.00 

Obsolete  and  useless 1,500.00  $59,000.00 

Customers'  Accounts: 

Good   $12,500.00 

Doubtful    2,500.00 

Bad   1,000.00  $16,000.00 

Accounts  Payable   $17,500.00 

41 


You  also  found  that  on  June  30,  1910,  Mr.  A.  B.  Levy's  Special  Loan  had  been  repaid  with  inter- 
est, and  that  a  5%  loan  had  been  obtained  from  the  bank  for  $10,000.00,  and  that  the  Cash  in  Bank  and 
on  Hand  at  December  31,  1911,  was  $15,000.00,  while  the  Bank  Interest  Prepaid  was  $250.00,  and  In- 
surance Premiums  Prepaid  amounted  to  $5,000.00.  The  Partners'  Drawings  on  account  of  Profits  and 
Interest  and  Commissions  were  found  to  be  as  follows: 

A.  B.  Levy  W.  K.  Mayer 

In  1909 ' $12,000.00  $16,000.00 

In  1910 15,000.00        15,000.00 

In  1911 18,000.00        20,000.00 


$45,000.00      $51,000.00 

After  consultation  with  the  Partners  it  was  agreed  to  write  50%  off  the  value  of  the  "Old  Style 
and  Partly  Soiled"  goods  and  off  the  Doubtful  Accounts  Receivable,  and  to  consider  the  Bad  Accounts 
and  Obsolete  and  Useless  material  to  be  of  no  value. 

You  are  required  to  draw  up  the  following: 

1.  A  statement  showing  how  you  arrive  at  the  Profit  and  Loss  for  the  three  years,  showing  also 
the  disposition  thereof. 

2.  The  Partners'  Accounts. 

3.  A  Balance  Sheet  at  December  31,  1911,  after  making  the  necessary  adjustment  of  the  accounts. 


42 


PART  II 
PARTNERSHIP  PROBLEMS 

9.  (From  New  York  C.  P.  A.  Examination.) 

X  and  Y  bought  merchandise  to  the  amount  of  $12,000.  X  contributed  $7,500;  Y,  $4,500.  They 
afterward  sold  Z  a  one-third  interest  for  $6,000.  How  much  of  this  amount  should  X  and  Y  receive, 
respectively,  in  order  to  make  X,  Y  and  Z  equal  partners. 

10.  During  the  summer  of  1909,  D  and  S  were  equal  partners  in  the  oriental  goods  business  in 
Lake  Placid,  N.  Y.  At  the  close  of  the  season,  after  all  collections  had  been  made  and  all  debts  paid, 
there  remained  in  the  bank  a  balance  of  $64.85.  Their  books  of  account  showed  that  during  the  summer 
D  had  withdrawn  $219.80  and  S,  $132.  At  the  close  of  the  season  they  dissolved  partnership,  but  no 
immediate  settlement  was  made,  and  three  months  later,  when  they  came  to  settle,  D  had  spent  the 
remaining  balance  of  $64.85.  At  that  time  D  entered  a  claim  for  personal  goods  to  the  amount  of  $26, 
which  he  had  contributed  to  the  firm,  and  S  a  similar  claim  for  $15.75.  S  demands  a  settlement.  What 
amount  is  owing  to  him? 

11.  Smith  and  Johnson  are  partners.  Smith  having  invested  $20,000  and  Johnson  $9,000,  profits 
and  losses  shared  equally.  Upon  liquidation  losses  are  suffered  so  that  the  amount  available  for  dis- 
tribution to  the  partners  is  only  $10,000. 

How  should  the  $10,000  be  divided? 

12.  A,  B  and  C  are  partners,  their  capital  accounts  showing  A,  $60,000;  B,  $20,000,  and  C,  $45,000. 
Upon  dissolution  the  assets  of  the  concern  are  sold  for  $54,700. 

a.  How  should  the  deficit  be  divided? 

b.  B  is  insolvent  and  the  claim  against  him  is  worthless.  How  should  the  amount  available  for 
distribution  be  divided? 

c.  Show  the  partners'  accounts  as  they  would  appear. after  the  books  had  been  closed  finally. 

13.  (From  New  York  C.  P.  A.  Examination.) 

Three  partners  contribute  capital  as  follows :  X,  $90,000;  Y,  $45,000;  Z,  $15,000.  They  share  profits 
in  the  proportion  of  X,  50%  ;  Y,  30%,  and  Z,  20%.  X's  salary  is  $5,000,  Y's  salary  is  $3,000,  Z's  salary 
is  $2,000.  At  the  end  of  their  fiscal  period  Z  dies.  The  books  are  closed  and  the  net  assets  ascertained 
to  be  $152,500.  X  and  Y  liquidate  the  firm's  affairs  and  distribute  the  surplus  assets  quarterly  as  fol- 
lows : 

First  quarter $42,410.20 

Second  quarter 74,622.30 

Third  quarter  31,967.50  $149,000.00 


Prepare  a  statement  of  the  partners*  accounts,  showing  how  the  distribution  of  assets  should  be 
made,  together  with  the  apportionment  of  the  loss. 

14.     (From  Examination  for  Admittance  to  the  American  Institute  of  Accountants,  June,  1917.) 

A,  B  and  C  were  in  partnership,  A's  capital  being  $90,000,  B's  $50,000,  and  C's  $50,000.  Their 
agreement  is  to  share  profits  in  the  following  ratio:  A,  60%  ;  B,  15%  ;  C,  25%.  During  the  year  C 
withdrew  $10,000.  Net  losses  on  the  business  during  the  year  were  $15,000,  and  it  is  decided  to  close 
out  the  business.  It  is  uncertain  how  much  the  assets  will  ultimately  yield,  although  none  of  them  is 
known  to  be  bad.  The  partners  therefore  mutually  agree  that  as  the  assets  are  liquidated,  distribution 
of  cash  on  hand  shall  be  made  monthly  in  such  a  manner  to  avoid,  so  far  as  feasible,  the  possibility  of 
paying  to  one  partner  cash  which  he  might  later  have  to  repay  to  another.  Collections  are  made  as 
follows:  May,  $15,000;  June,  $13,000;  July,  $52,000.  After  this  no  more  can  be  collected.  Show  the 
partners'  accounts,  indicating  how  the  cash  is  distributed  in  each  instalment,  the  essential  feature  in  the 
distribution  being  to  observe  the  agreement  given  above. 

43 


15.  (From  New  York  C.  P.  A.  Examination.) 

A,  B  and  C  agree  to  start  in  business  with  a  capital  of  $200,000,  of  which  A  is  to  furnish  $100,000 
and  B  and  C  $50,000  each.  A  is  to  have  Yi  interest  in  the  business  and  B  and  C  each  ^.  Interest  at 
5%  is  to  be  credited  on  excess,  or  charged  on  deficiency  of  capital.  A  contributes  $100,000,  B  $45,000 
and  C  $40,000.  How  would  the  capital  accounts  stand  on  the  books  after  adjusting  the  interest  at  the 
end  of  the  year? 

16.  (From  New  York  C.  P.  A.  Examination.) 

For  the  purpose  of  making  a  joint  speculation  A  contributes  $3,000,  B  $2,000,  and  C  $1,000,  and 
they  agree  to  share  the  profits  or  losses  in  proportion  to  the  amounts  contributed.  October  15,  1900, 
A  deposited  the  $6,000  with  his  broker,  giving  instructions  to  buy  300  shares  New  York  Central  and 
300  shares  Chicago,  Burlington  &  Quincy.  The  order  was  executed  October  16,  1900,  N.  Y.  C.  at  130^ 
and  C.  B.  &  Q.  at  127.  April  10,  1901,  under  instructions  from  A,  N.  Y.  C.  was  sold  at  151>4  and  C. 
B.  &  Q.  at  191 5^,  a  check  being  received  from  the  broker  to  close  the  account.  How  much  does  A  owe 
B  and  C  for  their  interests  in  the  deal,  calculating  interest  at  6%  (365  days  to  the  year),  commission  at 
^%,  and  revenue  tax  of  $2  for  each  100  shares? 

17.  (From  C.  P.  A.  Examination,  New  York.) 

A,  B  and  C  were  partners  carrying  on  business  with  a  capital  December  31,  1900,  of  $60,000,  of 
which  A's  share  was  $30,000,  B's  $20,000,  and  C's  $10,000;  each  partner  was  entitled  to  5%  interest  on 
his  capital;  profits  or  losses  to  be  shared  as  follows:  A,  7/12;  B,l/4,  and  C,  1/6.  The  partners  agree, 
July  1,  1901,  to  dissolve.  After  all  partnership  assets  had  been  realized  and  all  debts  paid,  except  $500 
legal  expenses,  there  remained  a  balance  in  bank  of  $48,750.  Final  settlement  takes  place  December 
31,  1901.  Cash  in  bank  bears  interest  at  2%  from  October  1,  1901.  Show  a  statement  for  settlement  and 
partners'  capital  accounts  as  of  December  31,  1901. 

18.  Wilson  and  Lawson  are  partners,  sharing  profits  and  losses  equally.  The  partnership  is  dis- 
solved December  31,  1907,  at  which  time  Wilson's  capital  investment  was  $10,000  and  Lawson's  $2,500. 
The  total  liabilities  of  the  firm  are  $25,000,  which  includes  $5,000  due  Wilson  on  loan  account  and  $2,500 
due  Lawson  on  loan  account.  The  assets  of  the  firm  are  disposed  of  for  $30,000  on  May  1,  1908.  Pre- 
pare accounts  closing  the  partnership  and  showing  the  position  in  which  the  partners  stand  to  each  other. 
No  allowance  for  interest  is  required. 

19.  (From  Massachusetts  C.   P.  A.  Examination.) 

A,  B  and  C  engage  in  business,  A  contributing  $10,000  and  B  $5,000,  while  C,  in  lieu  of  any  capital 
contribution,  agrees  to  undertake  the  active  management  at  a  salary  of  $3,000  per  year,  to  be  paid 
monthly. 

After  allowing  5%  interest  on  capital,  they  are  to  divide  the  net  result  in  the  proportions  of  5,  3 
and  2,  respectively. 

At  the  end  of  eighteen  months  they  ascertain  the  position  to  be  unfavorable  and  decide  to  wind 
up.  The  assets  realize  $12,500;  there  are  no  liabilities  except  for  capital  and  interest  thereon  and  one 
month's  salary  due  C. 

Make  up  the  partners'  accounts,  showing  the  amount  to  be  received  by  each. 

20.  (From  Massachusetts  C.   P.  A.  Examination.) 

A  and  B  form  a  partnership,  A  investing  $30,000  and  B  $50,000.  They  agree  to  share  expenses, 
profits  and  losses  equally.  They  further  agree  to  and  do  leave  their  original  investments  intact.  At  the 
end  of  the  first  year  the  profits  from  the  operations  of  the  business  amount  to  $30,000,  against  which  A 
has  drawn  in  twelve  equal  monthly  instalments  on  the  last  day  of  each  month  an  aggregate  amount 
of  $9,000;  B  has  drawn  against  his  profits  on  the  last  day  of  each  quarter  the  sum  of  $2,500. 

Prepare  journal  entries  adjusting  interest  at  5%  per  annum  between  the  partners  in  respect  to 
both  their  investment  and  drawing  accounts,  and  render  statements  showing  the  amount  each  partner 
has  in  the  business  at  the  end  of  the  year. 

44 


21.  (From  Illinois  C.  P.  A.  Examination.) 

A  and  B  enter  into  a  partnership  and  will  share  profits  in  the  proportion  indicated  by  their  invest- 
ments. A  furnishes  $25,000  and  B  $15,000,  which  is  invested  in  lands  and  buildings,  $10,000,  and  mer- 
chandise, $30,000.  However,  before  they  have  actually  commenced  business  C,  realizing  that  A  and  B 
have  a  promising  venture,  offers  to  buy  a  one-third  interest  in  the  business  for  $20,000.  A  agrees  to 
sell  provided  B  will  consent  to  pay  him  a  bonus  of  $4,000  out  of  his  (B's)  share.  This  B  agrees  to  do 
and  consents  to  the  sale. 

How  should  the  $20,000  be  divided  between  A  and.  B  so  that  the  interest  of  all  three  partners  will 
be  equal? 

22.  (From  Massachusetts  C.   P.  A.   Examination.) 

A  and  B,  partners,  finding  themselves  in  want  of  further  capital  in  their  business,  and  both  being 
possessed  of  real  property,  A  deposited  deeds  with  the  bankers  of  the  firm  as  security  for  a  loan  of 
$2,000.00  to  the  firm.  B  arranged  on  some  of  his  own  property  a  mortgage  for  $1,500.00  with  a  private 
friend  and  paid  the  proceeds  into  the  firm's  bank  account.  The  bankers  were  eventually  obliged  to 
realize  the  security  held  by  them  which  produced,  after  payment  of  all  expenses,  the  sum  of  $2,850.00. 

Prepare  entries  recording  these  transactions  in  the  firm's  books. 

23.  (From  California  C.  P.  A.  Examination.) 

Two  partners,  Wilson  and  Peters,  find  at  the  end  of  the  first  year's  business  that  the  balance  sheet 
shows  Wilson's  interest  to  be  worth  $18,000  and  Peters',  $9,000.  The  good  will  of  the  firm  is  worth 
$3,000.    Each  partner  draws  profits  in  proportion  to  his  investment. 

They  conclude  to  take  in  another  partner  and  to  give  him  a  one-quarter  interest  in  the  new  firm. 
What  sum  must  the  new  partner  contribute?  How  will  the  partnership  accounts  appear  after  the 
payment  in  of  the  new  capital?    How  will  the  profits  be  divided? 

24.  (From  Washington   C.   P.   A.    Examination.) 

H.  Pratt,  F.  Jones  and  J.  Todd  entered  into  partnership  on  July  1,  1914.  Pratt  brought  in  as  cap- 
ital $15,000.00;  Jones,  $10,000.00,  and  Todd,  $5,000.00.  They  were  to  share  profits  in  the  proportions  of 
three-sixths,  two-sixths  and  one-sixth,  but  as  Jones  and  Todd  were  the  working  partners  they  were  to 
be  credited  at  the  close  of  each  current  year,  by  way  of  salary,  with  the  respective  sums  of  $1,250.00 
and  $750.00.  Pratt  was  to  be  allowed  to  draw  each  year  as  against  profits  $2,500.00,  Jones  $1,650.00 
and  Todd  $1,250.00,  but  interest  at  6%  was  to  be  charged  on  such  drawings.  The  partnership  agree- 
ment also  provided  that  Jones  and  Todd  should  have  the  right  to  bring  in  extra  capital  not  exceeding 
$8,000.00  each,  and  that  upon  such  capital  they  were  to  be  credited  with  6%  interest.  On  closing  the 
books  on  June  30,  1915,  it  was  found  that  the  partners  had  drawn: 

Pratt  Jones  Todd 

Sept.   1 $500.00         Aug.    1 $400.00         Aug.    1 $300.00 

Nov.    1 750.00         Sept.   1 350.00         Sept.   1 250.00 

Dec.   1 1,000.00         Oct.     1 500.00  Nov.    1 400.00 

Dec.    1 425.00  Dec.    1 100.00 

On  October  1,  Jones  brought  into  the  business  as  additional  capital  the  sum  of  $1,250.00  and  Todd 
$2,000.00.  On  closing  the  books  at  June  30,  1915,  and  before  the  salary  or  interest  to  partners  had  been 
dealt  with,  the  balance  to  the  credit  of  Profit  and  Loss  stood  at  the  sum  of  $11,000.00.  Make  the  closing 
entries  and  prepare  Capital  and  Drawing  Accounts  showing  the  exact  position  of  the  partners  of  July 
1,  1915. 

25.  December  31,  1915,  the  following  trial  balance  was  taken  after  closing  from  the  books  of 
Dudley  and  Sealy: 

Assets  Liabilities 

Cash    $460,000  Accounts  Payable   $800,000 

Accounts  Receivable 550,000  Notes  Payable    490,000 

Notes  Receivable 75,000  Dudley,  Capital   525,000 

Merchandise    830,000  Seal)',  Capital  450,000 

Real  Estate  350,000 

$2,265,000  $2,265,000 

45 


Profits  and  losses  are  shared  equally. 

On  the  date  mentioned  above  an  agreement  is  made  to  admit  Williard  into  the  partnership,  he  to  in- 
vest in  the  business  sufficient  cash  to  give  him  a  one-third  interest.  Inspection  of  the  accounting  records 
shows  that  of  the  accounts  and  notes  receivable  now  carried  on  the  books,  $30,000  of  accounts  receiv- 
able and  $45,000  of  notes  receivable  are  worthless.  A  physical  inventory  shows  the  cost  of  goods  on 
hand  to  be  $890,000.    The  good  will  is  valued  at  $150,000. 

Make  the  entries  necessary  to  properly  adjust  the  books  and  to  show  the  admitting  of  Williard. 
Show  a  trial  balance  taken  from  the  books  after  these  entries  have  been  made  and  posted. 

26.     (From  New  York  Examination.) 

A,  B,  C  and  D  enter  into  partnership  with  a  capital  of  $100,000.00.  A  invests  $40,000.00,  B  $30,000.00, 
C  $20,000.00,  and  D  $10,000.00.  They  are  to  share  profits  or  losses  in  the  following  proportions  :  A  35  % , 
B  28%,  C  22%,  and  D  15%.  ,  They  are  also  to  receive  stipulated  salaries  chargeable  to  the  business. 

At  the  end  of  six  months  there  is  a  loss  of  $8,000,  and  meantime  the  partners  have  drawn  against 
prospective  profits  as  follows:    A,  $400;  B,  $600;  C,  $600,  and  D,  $400. 

They  dissolve  partnership  and  agree  to  distribute  proceeds  of  firm  assets  monthly  as  realized.  C 
and  D  enter  other  business  and  A  and  B  remain  to  wind  up  the  firm's  affairs,  it  being  stipulated  that  from 
all  moneys  collected  and  paid  over  to  C  and  D  a  commission  of  5%  is  to  be  deducted  and  divided 
equally  between  A  and  B  for  their  services  in  the  winding  up. 

The  realization  and  liquidation  lasts  four  months  and  the  transactions  are  as  follows : 

'  Expenses  and  losses 

Assets  Liabilities  on  realization  exclu- 

realized  liquidated  sive  of  commissions 

First  month    $30,190.00  $7,900.00  $400.00 

Second  month 50,300.00  6,100.00  750.00 

Third  month 20,010.00  3,800.00  340.00 

Fourth  month 9,500.00  2,200.00  110.00 


$110,000.00  $20,000.00  $1,600.00 

Prepare  partners'  accounts  showing  the  amount  payable  monthly  to  each  one. 

27.  (From  the  Final  Examination  of  the  Society  of  Accountants  and  Auditors  in  London,  Eng- 
land, December,  1907.) 

Diogenes  Brown  and  Eusebius  Robinson,  having  separate  businesses,  agree  to  a  joint  venture  in  a 
cargo  of  goods  to  a  newly-established  Colony,  under  the  following  arrangement : 

Each  supplies  $5,000  of  his  own  goods,  besides  which  they  jointly  purchase  $10,000  (net)  from 
other  parties.  This  latter  sum  is  paid  by  E.  R.,  who  receives  all  the  goods  into  his  own  warehouse, 
packs  them,  puts  them  on  board  ship,  and  pays  all  the  necessary  outgoings.  For  this  he  makes  a 
charge  of  $50,  and  is  entitled  to  interest  at  5  per  cent,  per  annum  for  Cash-out-of-pocket,  until  the  real- 
ization. The  out-of-pocket  expenses  are:  Freight  and  Charges,  $175;  Insurance,  $125,  and  Packing 
Cases,  $35.  The  goods  are  sold  upon  arrival  for  $25,000,  and  at  the  end  of  three  months  from  the  start 
of  the  transaction  a  remittance,  less  charges  for  Landing,  Warehousing,  Sale  Charges  and  Commis- 
si6ns,  etc.,  $412.25,  is  received  by  E.  R.  Journalize  these  transactions,  and  raise  proper  Joint  Adven- 
ture Accounts  in  the  books  of  both  parties,  showing  the  profit  made,  which  is  to  be  equally  divided. 


46 


28.     (From  the  State  of  Washington  Examination.) 

A  and  B,  who  had  hitherto  been  in  business  separately,  decided  to  enter  into  partnership  on  July 
1,  1905.    The  Balance  Sheets  of  A  and  B  were  on  that  date  as  follows: 


Liabilities 


Accounts  Payable 
Capital  Account  . 


$1,000 
5,000 


Liabilities 


Accounts  Payable 
Capital  Account  . , 


$1,500 
3,000 


$6,000 


$6,000 


$4,500 


$4,500 


Assets 

Furniture   $750 

Accounts  Receivable  (face  value) ....  2,500 

Merchandise    2,550 

Cash    200 


B 


$6,000 

Assets 

Furniture   

$600 
1,500 

Accounts  Receivable   (face  value) 

Merchandise 

2,000 

Cash    

400 

$4,500 


It  was  agreed  that  A  and  B  should  make  over  their  respective  accounts  receivable  at  $200  and  $150 
less  than  the  face  values  shown  in  the  Balance  Sheets,  these  amounts  to  be  charged  against  their  Cap- 
ital Accounts  and  carried  on  the  partnership  books  as  a  reserve  for  bad  and  doubtful  accounts.  Of  B's 
furniture  only  $250  was  to  be  taken  over  by  the  partnership.  With  the  above  exceptions  the  assets 
and  liabilities  of  the  parties  were  to  be  taken  over  by  the  partnership  at  the  Balance  Sheet  figures,  ex- 
cept that  B  was  to  invest  in  the  partnership,  in  cash,  a  sum  which,  after  making  the  adjustments 
above  referred  to,  would  make  his  capital  account  the  same  as  that  of  A, 

Draw  the  Balance  Sheet  of  the  A  and  B  partnership  on  July  1,  1905,  giving  effect  to  the  fore- 
going provisions. 

29.  A  and  B  of  Colorado  engaged  as  equal  partners  in  a  stock-raising  enterprise  with  a  capital  of 
$10,000,  each  contributing  one-half. 

A  received  a  salary  of  $200  per  month. 

At  the  end  of  three  years  they  decided  to  terminate  the  business,  and  B,  who  handled  all  the 
money  of  the  copartnership  and  kept  the  books,  reported  the  following  receipts  and  payments : 


Receipts 

A's  investment  $5,000 

B's  investment  5,000 

Sales  of  Cattle 80,359 

Loans    15,000 


Payments 

Purchases  of  Cattle $57,000 

Loans  repaid   14,000 

A's  salary *.  4,200 

Interest    1,000 

Expenses    9,000 

A's  withdrawals  2,200 

B's  withdrawals   1,800 


A  round-up  and  branding  of  the  herd  showed  the  following  inventory :  30  heifers  at  $20 ;  38  steers 
at  $30;  75  cows  at  $20;  10  bulls  at  $60;  75  yearlings  at  $12;  100  calves  at  $8.  There  remained  with 
the  bankers  a  balance  of  $16,150  and  other  assets  were  as  follows:  Horses,  $800;  tools,  etc.,  $100;  sup- 
plies, $150;  branding  irons,  $40;  salt,  $100;  loan  at  the  bank,  $1,000;  unpaid  wages,  $260.  You  are  re- 
quired to  prepare  such  statements  as  are  necessary  to  show  (a)  the  financial  condition  of  the  copart- 
nership at  its  termination ;  (b)  the  results  of  the  three  years  operations ;  (c)  the  interest  of  each  partner. 

30.     (From  Illinois  C.  P.  A.  Examination  in  Practical  Accounting.) 

A  and  B,  equal  partners  in  a  manufacturing  business,  admit  their  factory  superintendent,  C,  as  an 
equal  partner  with  them  in  the  profits  without  his  furnishing  any  capital,  A  and  B  reserving  to  them- 
selves in  case  of  dissolution  any  good  will  which  may  have  accrued  to  the  business. 

47 


On  December  31,  1912,  a  balance  sheet  was  drafted  and  approved  by  all  concerned  as  follows : 

Assets : 

Real  Estate  and  Plant $90,000.00 

Merchandise  Inventory 35,000.00 

Accounts  Receivable 25,000.00 

Notes  Receivable 15,000.00 

Cash    18,000.00 

$183,000.00 
Liabilities : 

Notes  Payable   $10,000.00 

Accounts  Payable   12,500.00 

A's  Account   $4,500.00 

B's  Account   •. 4,000.00 

C's  Account   2,000.00        10,500.00 

Capital  Accounts :  

A    $75,000.00 

B    75,000.00      150,000.00 

$183,000.00 

Later  the  business  was  sold  as  a  "going"  concern  and  the  partnership  dissolved.  The  purchaser 
assumes  all  outside  liabilities  and  pays  the  sum  of  $225,000  cash,  of  which  the  real  estate  and  plant  is 
valued  at  $120,000.  Make  the  entries  necessary  to  close  the  books  of  the  partnership,  and  show  the  con- 
dition of  the  partners'  accounts  after  closing.  ^ 

31.  S  and  T  began  business  August  1,  1899,  S  investing  $8,000  and  T  $5,000,  gains  and  losses  to  be 
shared  equally  and  no  interest  allowed  on  investment  or  charged  on  withdrawals. 

The  firm  dissolves  May  1st,  1900.  The  books  had  been  kept  in  a  haphazard  fashion,  but  the  part- 
ners agreed  to  the  following  statement,  which  was  submitted  for  settlement :  Net  debit  of  S,  $2,100 ; 
net  credit  of  T,  $3,500;  cash  on  hand,  $3,400;  10  shares  of  bank  stock  (market  value,  $1,100)  ;  expense 
debit,  $5,100;  profit  and  loss  debit,  $3,000;  credit,  $500.  The  bank  holds  the  firm's  note  for  $2,000,  on 
which  there  is  accrued  interest,  $60. 

Prepare  a  statement  showing  the  settlement  of  the  partnership  affairs  of  the  firm. 

32.  (From   Washington   C.   P.   A.   Examination.) 

A  and  B  carried  on  business  in  partnership  and  divided  profits  and  losses  in  proportion  to  their 
capital,  three-fifths  and  two-fifths,  respectively.  On  January  1,  1915,  A's  capital  was  $52,500.00  and 
B's  $35,000.00,  as  shown  by  a  balance  sheet  of  that  date.  They  agreed  to  admit  C  as  a  partner  from 
the  same  date  on  the  following  terms : 

1.  Assets   and   liabilities   and   capital   to   be   taken  as  shown  in  the  balance  sheet; 

2.  $12,500.00  to  be  added  to  the  assets  for  good  will ; 

3.  The  amount  of  good  will  to  be  added  to  A's  and  B's  capital  in  the  proportion  in  which  they 
divide  profits ; 

4.  C  to  pay  to  the  partnership  such  a  sum  as  will  give  him  a  one-fifth  share  in  the  business. 

a.  State  what  amount  of  capital   C  has  to  bring  in. 

b.  Set   out   the   capital   accounts   of    each   partner  in  the  new  partnership,  and 

c.  State  in  what  proportions  the  profits  will  be  divided  in  the  future,  A  and  B,  as  between 
themselves,  sharing  in  the  same  proportions  as  before. 

48 


PART   III 
CORPORATION  ACCOUNTS 

Section  1 — General  Problems 

« 

33.  R.  H.  Barnes,  C.  W.  Weston  and  J.  H.  Moore  organize  the  R.  H.  Barnes  Company  with  a  cap- 
ital stock  of  $25,000,  divided  into  shares  of  $100  each.  On  June  1  all  of  the  stock  had  been  subscribed 
for,  and  the  subscribers  made  payments  for  their  stock  in  cash,  June  15.  Make  opening  entries  in  the 
books  of  the  corporation. 

34.  The  Wakefield  Company  was  incorporated  January  1,  1913,  with  an  authorized  capital  stock 
of  $100,000,  consisting  of  $50,000  6%  Preferred  Stock  and  $50,000  Common  Stock,  divided  into  shares 
of  $100  each.  All  of  the  Preferred  Stock  and  50^  of  the  Common  Stock  had  been  subscribed  for. 
The  subscriptions  were  paid  February  1.    Show  in  journal  form  the  entries  to  be  made  for  the  above. 

35.  At  the  time  of  incorporating  the  Jones  Manufacturing  Company,  May  1,  1912,  to  take  over 
the  business  established  by  William  Jones,  it  was  the  agreement  between  Jones  and  the  other  incorpo- 
rators that  of  the  $100,000  in  capital  stock  which  he  received  in  exchange  for  his  business,  he  would 
donate  to  t|ie  corporation  20%  to  be  sold  to  provide  cash  to  make  necessary  expansion.  On  July  10 
$10,000  of  the  stock  so  donated  was  sold  to  investors  at  60. 

Make  proper  entries. 

36.  The  directors  of  the  Consolidated  Railway  Company  vote  on  issue  of  $850,000  first  mortgage 
5%  bonds  on  March,  1912,  due  in  1940.  The  entire  issue  is  subscribed  for  by  E.  H.  Sloane  &  Co., 
Investment  Bankers,  at  98. 

Make  proper  entry  to  show  the  issue  of  the  bonds. 

37.  The  Toledo  Paper  Company,  finding  that  it  can  use  to  advantage  additional  capital,  issues 
$100,000  first  mortgage  20-year  Gold  Bonds  bearing  5%  interest.  It  sells  these  bonds  at  96.  Give  the 
entry  on  the  books  of  the  corporation. 

J.  M.  Davidson  buys  $10,000  of  the  bonds  at  96.  What  entry  will  Davidson  make  for  the  pur- 
chase ? 

38.  (From   Examination  for  Admittance  to   the  American   Institute  of  Accountants.) 

A  corporation  having  issued  its  capital  stock  at  par  buys  1,000  shares  at  95.  It  later  sells  500 
of  these  shares  at  98,  and  300  at  85,  and  200  at  101.  Give  the  journal  entries  covering  these  transac- 
tions. 

How  should  the  items  appear  on  the  balance  sheet  immediately  after  purchasing  the  stock,  and  im- 
mediately after  each  of  the  sales? 

39.  (From  Massachusetts  C.  P.  A.  Examination.) 

A  company  is  formed  with  a  nominal  capital  of  $500,000  in  50,000  shares  of  $10.00  each.  Of  these, 
40,000  are  issued  and  subscribed  for.  $1.00  per  share  is  payable  on  application,  and  $2.00  per  share 
on  allotment.  A  call  of  $3.00  per  share  is  made  four  months  after  the  date  of  allotment,  and  a  further 
call  of  $3.00  three  months  after  the  date  of  the  first  call. 

The  deposit,  with  the  amount  per  share  due  on  allotment,  is  paid  in  full,  but  in  respect  to  the  first 
call  $110,000  only  is  received,  and  on  the  second  call  $95,000  only.  The  amounts  received  are  paid  into 
the  company's  banking  account. 

Prepare  journal  entries  to  record  the  above  transactions. 

40.  (From   Examination   for   Admittance   to   the  American   Institute  of  Accountants.) 

A  company  organized  with  $1,000,000  capital  stock  which  it  placed  at  par,  and  $1,000,000  5  per  cent, 
bonds  which  it  sold  at  90,  this  being  a  6  per  cent,  basis.  It  paid  to  contractors,  etc.,  for  construction 
$1,800,000,  and  this  amount  of  investment  ran,  on  the  average,  for  one  year  before  the  property  was  ready 

49 


for  operation.  When  operation  began  the  company  had  therefore  paid  one  year's  interest  on  the  issue 
of  bonds.  No  dividends  were  paid  on  the  stock.  In  addition  to  the  sum  named  above  the  company 
also  paid  $10,000  for  legal  expenses  in  connection  with  incorporation  and  $5,000  for  franchise  and  other 
fees. 

How  should  the  accounts  appear  when  the  property  was  ready  for  operation  ? 

41.  A  Massachusetts  corporation  was  organized  with  a  capital  of  $100,000 — 10,000  shares  of  $10 
each.  At  the  meeting  of  the  incorporators  it  was  resolved  to  purchase  certain  patent  rights  from  and  for 
the  whole  of  the  capital,  less  100  shares  held  by  the  incorporators  and  paid  for  at  par.  Afterward  the 
former  owner  of  the  patent  rights  agreed  to  sell  to  the  company  5,900  shares  for  the  sum  of  $29,500, 
or  $5  per  share,  which  was  accepted,  and  B  was  appointed  trustee  to  hold  the  stock  in  his  name  as  trus- 
tee, and  was  authorized  by  the  directors  to  sell  the  stock  at  $8  per  share,  which  he  succeeded  in  doing. 
Give  proper  entries  for  the  above  transactions  and  how  would  the  profits  on  this  transaction  afifect 
the  dividends  of  the  stockholders  ? 

42.  (From  New  York  C.  P.  A.  Examination.) 

A  corporation  organized  under  the  laws  of  the  state  of  New  York  has  an  authorized  capital  of 
$200,000,  consisting  of  1,000  shares  common  and  1,000  shares  preferred  stock,  par  value  $100  each. 
Patents  were  acquired  of  a  patentee  for  $50,000  common  and  $50,000  preferred  stock.  The  patentee 
donated  one-half  of  each  issue  of  his  stock  to  the  company  for  its  use  in  securing  working  capital.  Show 
entries  necessary  to  record  these  transactions. 

43.  A  corporation  is  organized  with  a  capital  stock  of  $100,000  to  acquire  a  business  formerly  con- 
ducted by  A.  The  business  shows  Sundry  Assets  $150,000  and  Sundry  Liabilities  $80,000.  Three  shares 
of  stock  are  sold  at  par  to  X,  Y  and  Z,  who  afterward  become  directors  of  the  new  corporation.  All  of 
the  remaining  stock  is  issued  to  A,  who  immediately  donates  $10,000  of  stock  to  the  treasury  to  procure 
additional  capital.  Two  months. later  $5,000  of  the  donated  stock  is  sold  at  48  and  six  months  later 
the  remainder  was  sold  at  62. 

44.  (From  Illinois  C.  P.  A.  Examination.) 

A  company  is  formed  at  January  1st,  1907,  with  a  capital  of  $1,750,000.00,  consisting  of  17,500 
shares  of  the  par  value  of  $100.00  each. 

Of  these,  16,250  shares  are  sold  to  subscribers  at  par  for  cash. 

The  following  is  a  summary  of  the  transactions  of  the  company  during  the  first  twelve  months 
of  carrying  on  business : 

The  preliminary  and  formation  expenses  are  $12,500.00,  which  are  paid  in  cash. 

They  purchase  freehold  and  leasehold  current  going  iron  works  and  collieries  from  A.  B  and  Com- 
pany for  $1,250,000.00. 

They  take  over  from  them  the  necessary  plant  and  machinery  at  $375,000.00,  and  a  stock  of  iron, 
coal,  etc.,  at  $229,250.00. 

The  vendors  take  in  part  payment  of  their  purchase  money  $50,000.00  on  First  Mortgage  Bonds, 
and  $125,000.00  in  shares  of  the  company,  fully  paid.    There  is  $1,665,000.00  paid  to  them  in  cash. 

The  company  expends  during  the  year  $54,200.00  in  additions  to  the  plant  and  machinery  by  pur- 
chases from  sundry  creditors  to  the  extent  of  $41,300.00,  and  by  payments  through  Cash  Account  of 
$12,900.00. 

They  purchase  materials  from  sundry  creditors  to  the  extent  of  $461,500.00,  and  they  purchase  for 
cash  to  the  extent  of  $67,310.00.  They  pay  for  wages,  rents,  royalties,  tools,  wagon  hire,  repairs,  etc., 
$842,700.00. 

Their  sales  from  iron  and  coal  to  sundry  debtors  amount  to  $1,526,585.00.  They  receive  in  cash 
from  sundry  debtors  $1,040,700.00. 

They  draw  on  sundry  debtors  bills  to  the  extent  of  $419,740.00. 

They  transfer  of  the  above  amount  to  sundry  creditors  $54,510.00,  and  the  bank  credits  their  account 
with  $331,400.00,  the  proceeds  of  those  discounted. 

They  pay  in  cash  to  sundry  creditors  $231,415.00. 

They  accept  for  creditors,  bills  of  exchange  to  the  extent  of  $142,110.00;  of  this  amount  they  meet 
$86,005.00  through  their  banking  account,  the  balance  being  still  current  at  the  end  of  the  year.  They 
borrow  on  First  Mortgage  Bonds  $375,000.00,  which  is  paid  into  their  banking  account  as  received. 

50 


They  pay  to  their  bankers  for  interest  and  commissions  $8,040.00 ;  for  salaries,  office  expenses,  and 
management,  $15,670.00;  law  charges,  $410.00,  and  for  Directors'  and  Auditors'  fees,  $3,010.00. 

They  write  off  five  per  cent,  from  the  original  amount  of  the  plant  and  machinery  for  deprecia- 
tion, but  nothing  from  the  additions. 

They  also  write  off  the  following  amounts :  $25,000.00  from  the  freehold  and  leasehold  property 
to  cover  minerals  taken  from  the  freehold  and  to  provide  for  the  expiration  of  the  leases ;  $3,005.00  for 
bad  debts,  and  one-fifth  from  the  preliminary  expenses. 

The  discount  allowed  to  sundry  debtors  amounted  to  $5,530.00. 

There  is  due  at  the  close  of  the  year  $2,250.00  for  interest  on  Bonds,  and  the  value  of  the  stock 
of  materials  then  on  hand  is  $154,285.00. 

All  receipts  are  paid  into  the  bank,  and  all  payments  are  made  by  check. 

Make  journal  entries  covering  the  above  transactions  for  the  year  and  prepare  a  Trading  and 
Profit  and  Loss  Account  and  a  Balance  Sheet. 

45.  The  Domestic  Manufacturing  Company,  organized  with  a  capital  stock  of  $5,000,000,  one-half 
preferred  stock  and  one-half  common  stock,  sells  five  shares  of  common  stock  at  par  for  cash.  It  issues 
to  John  Jones  $1,500,000  preferred  stock  and  $1,000,000  common  stock,  in  consideration  of  the  assign- 
ment by  him  of  certain  patents,  rights  and  contracts.  Later  Jones  agrees  to  surrender  for  valuable  con- 
sideration to  the  treasurer  of  the  Domestic  Mfg.  Co.,  $1,000,000  common  stock  and  $500,000  preferred 
stock.  Still  later  Jones  agrees  with  the  Domestic  Company  to  surrender  $1,000,000  preferred  stock  and 
take  in  lieu  therefor  $1,000,000  in  common  stock.  Jones  makes  a  further  agreement  with  the  Domestic 
Company  to  dehver  to  it  all  the  stock  in  the  Blank  Company,  appraised  at  $350,000,  and  to  pay  the 
Domestic  Company  $150,000,  for  which  he  is  to  receive  $500,000  in  preferred  stock  of  the  Domestic 
Company. 

Illustrate  by  journal  entries  the  necessary  accounts  to  be  opened  in  the  books  of  the  Domestic 
Company  to  show  each  step  taken  in  the  foregoing  agreement. 

46.  (From  Illinois  C.  P.  A.  Examination.) 

A  corporation's  profits  for  the  year  ended  December  31,  1908,  amount  to  $451,000.00.  The  by-laws 
require  a  reserve  equal  to  ten  per  cent,  of  any  dividend  paid  to  the  common  stockholders,  and  any  sur- 
plus remaining  after  such  dividend  has  been  paid  is  to  be  applied  to  the  reserve  until  it  amounts  to 
$250,000.00.  The  reserve  at  December  31,  1907,  was  $156,020.00.  The  capital  is  $2,000,000.00— one- 
half  cumulative  preference  five  per  cent.,,  and  one-half  common,  all  fully  paid.  On  December  31,  1908, 
the  preferred  dividend  is  two  and  one-half  years  in  arrear.  On  December  31,  1907,  profit  and  loss 
account  was  in  debit  $202,000.00.  Set  out  your  treatment  of  the  profit  for  1908,  and  comment  con- 
cisely on  the  position. 

47.  (From  New  York  C.  P.  A  Examination.) 

The  Prosperous  Company  is  organized  under  the  laws  of  the  State  of  New  York  to  conduct  a  manu- 
facturing business.  The  authorized  capital  is  $500,000,  divided  into  $250,000  common  and  $250,000  pre- 
ferred stock,  par  value  of  shares  $100.  Five  incorporators  subscribe  each  for  one  share  of  common 
stock  at  face  value.  John  Peters,  one  of  the  incorporators,  purchases  from  three  manufacturing  com- 
panies their  complete  plants  for  $499,500  and  transfers  said  plants  to  the  Prosperous  Company  for  the 
remaining  $499,500  of  common  and  preferred  stock  and  $100,000  of  first  mortgage  5%  bonds  out  of  a 
total  issue  of  bonds  amounting  to  $150,000,  leaving  $50,000  of  bonds  in  the  treasury.  The  incorpo- 
rators then  pay  in  cash  for  their  respective  subscriptions. 

The  individual  assets  acquired  are  as  follows:  Land  and  buildings,  $75,000;  plant  and  machinery, 
$200,000;  tools,  equipment  and  fixtures,  $50,000;  inventories,  $100,000;  accounts  receivable,  good,  $28,- 
000,  doubtful,  $5,000;  cash,  $12,000. 

Prepare  (a)  opening  entries  for  the  books  of  the  Prosperous  Company,  (b)  initial  balance  sheet 
showing  the  company's  financial  condition. 

51 


48.  The  X  Company  is  incorporated  under  the  Business  Corporation  Law  of  Massachusetts,  Jan- 
uary 1,  1916,  with  an  authorized  capital  of  $100,000.  One  share  of  stock  is  given  to  each  of  the  three 
incorporators.  A,  B  and  C,  in  order  that  they  may  qualify  as  directors ;  five  shares  are  given  to  a  lawyer, 
D,  as  compensation  for  legal  services  performed  in  organizing  the  corporation ;  an  investment  banker  un- 
dertakes the  sale  of  the  remainder  of  the  stock  to  investors  less  fifty  shares  of  stock,  which  he  is  to 
receive  as  compensation  for  his  services.  The  subscription  books  remain  open  until  March  1.  Pay- 
ments for  the  stock  are  to  be  made  in  four  equal  instalments  on  the  first  day  of  March,  June,  September 
and  December. 

On  March  1  the  banker  reports  that  all  the  stock  is  subscribed  for  and  the  first  instalment  is  called 
and  paid.  Fifty  shares  of  stock  are  issued  to  the  banker  for  his  services.  Stock  certificates  are  issued 
to  all  subscribers. 

June  1  the  second  instalment  is  called  and  paid. 

September  1  the  third  instalment  is  called  and  paid  by  all  subscribers  except  F,  who  subscribed  for 
10  shares. 

December  1  the  fourth  and  last  instalment  is  called  and  paid,  F  again  defaulting  on  the  payment  of 
his  instalment. 

January  10,  1917,  the  treasurer  of  the  X  Company  offers  F's  shares  for  sale  at  public  auction.  The 
shares  are  sold  to  G  for  $700.  The  expenses  of  the  sale  amount  to  $25.  A  stock  certificate  for  the 
ten  shares  is  issued  to  G.  After  deducting  expenses  and  interest  on  unpaid  instalments  at  6%  the 
surplus  of  the  sale  is  remitted  to  F  upon  the  surrender  of  his  certificates. 

a.  Make  necessary  entries  covering  the  above. 

b.  In  case  $400  is  the  highest  bid  at  auction  for  the  shares  what  action  would  the  directors 
take  ? 

c.  Instead  of  offering  F's  shares  for  sale  at  auction  the  directors  elected  to  bring  action  at  law 
against  him  for  the  amount  due  from  him,  together  with  interest  thereon.  The  action  is  entered  on 
February  1,  1917,  for  $535,  covering  interest  and  charges.  Judgment  is  obtained  on  March  1.  At  the 
end  of  thirty  days  as  the  judgment  remains  unpaid,  the  directors  declare  all  amounts  previously  paid 
by  him  forfeited  to  the  corporations,  an  entry  of  transfer  of  the  stock  to  the  corporation  is  made,  and 
the  original  certificate  is  declared  void. 

Make  necessary  entries. 

49.  George  N.  Brown  is  an  inventor  and  holds  patent  rights,  processes  and  inventions  which  are 
used  by  different  companies  in  the  manufacture  of  gas' and  electric  engines  and  electrical  appliances.  He 
decides  to  organize  a  corporation  for  the  purpose  of  selling  gas  and  electric  engines,  pumps,  irrigation 
machinery  and  a  full  line  of  electrical  appliances.  A  central  jobbing  house  is  to  be  established  in 
Boston  and  selling  agencies  will  gradually  be  opened  in  all  the  principal  ^cities. 

The  corporation  is  organized  under  the  laws  of  the  State  of  Maine,  March  1,  1915,  the  incorpo- 
rators being  George  N.  Brown  and  three  of  his  business  associates.  The  corporation  name  is  The 
George  N.  Brown  Company.  The  authorized  capitalization  is  $100,000,  divided  into  500  shares  of  7% 
non-cumulative  Preferred  Stock,  par  value  $100  per  share,  and  500  shares  of  Common  Stock,  par  value 
$100  per  share.  In  order  that  the  four  incorporators  may  qualify  as  directors,  each  is  given  two  shares 
of  Common  Stock.  Brown  assigns  to  the  corporation  all  of  his  patent  rights  and  trade  marks  in  ex- 
change for  100  shares  of  Preferred  and  492  shares  of  Common  Stock.  He  at  once  donates  to  the  corpo- 
ration all  of  his  Preferred  Stock  and  242  shares  of  his  Common  Stock  to  be  sold  to  procure  working 
capital.  He  also  assigns  to  each  of  the  other  three  incorporators  for  a  private  consideration  one-fourth 
of  the  remainder  of  his  holding  of  Common  Stock. 

King  &  Co.,  stock  brokers,  are  engaged  to  sell  the  Preferred  and  Common  Stock  held  in  the 
treasury,  their  commission  to  be  paid  in  treasury  stock.  They  sell  to  John  White  50  shares  of  the  Pre- 
ferred Stock,  taking  in  payment  two  notes,  one  for  $3,000  and  the  other  for  $2,000,  each  for  3  months 
and  bearing  interest  at  5%.  The  $2,000  note  is  immediately  discounted  at  the  bank  at  6%.*  For  making 
this  sale  King  &  Co.  are  given  25  shares  of  Preferred  and  75  shares  of  Common  Stock. 

Brown  is  elected  general  manager  of  the  company  at  a  salary  of  $2,000  per  year  and  traveling 
expenses.    The  payments  made  during  the  month  of  March  are  as  follows:    Office  Furniture,  $200;  Of- 

52 


fice  Rent,  $50;  Brown's  salary  for  the  month;  organization  expenses  amounting  to  $250;  this  included 
lawyer's  fee,  stenographer's  services,  publicity,  state  corporation  fee,  corporation  seal,  accountant  fee, 
corporation  books  of  account,  etc. 

Make  journal  entries  covering  the  above  transactions,  post  and  take  a  trial  balance. 

50.  A  corporation  is  organized  to  conduct  a  manufacturing  business  with  a  declared  capital  of 
$2,000,000,  divided  into  20,000  shares  of  the  par  value  of  $100,  of  which  15,000  shares  or  $1,500,000 
shall  be  preferred  stock  and  5,000  shares  of  $500,000  common  stock.  The  corporation  purposes  to 
issue  $500,000  in  consolidated  mortgage  bonds  to  be  used  toward  the  purchase  of  sundry  properties. 
The  amount  of  capital  with  which  the  corporation  begins  business  is  $50,000,  being  the  proceeds  of 
subscription  for  500  shares  preferred  stock. 

To  carry  out  the  purposes  of  said  corporation,  the  real  estate,  water  power,  machinery,  good  will, 
etc.,  of  certain  existing  corporations  has  been  purchased  at  an  appraised  valuation  of  $2,000,000,  viz.. 
Diamond  Mfg.  Co.,  $200,000 ;  Eureka  Mfg.  Co.,  $300,000 ;  Champion  Mfg.  Co.,  $500,000 ;  American  Mfg. 
Co.,  $600,000;  Aetna  Mfg.  Co.,  $400,000,  and  in  payment  full  paid  stock  and  bonds  have  been  issued  at 
par  on  a  basis  of  60%  in  preferred  stock,  20%  in  common  stock,  and  20%  in  bonds. 

Materials  and  supplies  are  to  be  paid  for  in  cash  when  their  value  is  determined. 

Formulate  the  entry  necessary  to  open  the  books  of  the  new  corporation. 

51.  (From  Illinois  C.  P.  A.  Examination.) 

As  on  January  1,  1890,  a  corporation  is  formed  for  the  purpose  of  acquiring  and  conducting  a  ceme- 
tery, and  starts  business  on  that  date  with  a  capital  stock  of  $100,000.00  paid  for  in  cash.  The  company 
first  purchases  forty  acres  of  land  within  easy  access  of  a  large  city,  paying  for  same  at  the  rate  of 
$1,000  per  acre.  It  proceeds  to  expend  considerable  sums  of  money  in  the  purchase  and  planting  of 
trees  and  shrubs,  laying  out  drives  and  pathways,  sodding,  building  of  glass  houses,  etc.  The  policy 
of  the  company  is  to  withhold  the  selling  of  burial  lots  until  after  January  1,  1900,  so  as  to  allow 
the  trees  and  shrubs  to  become  more  fully  grown  and  in  the  expectation  that  with  the  growth  of  the 
city  their  property  will  become  more  valuable.  In  the  year  1900  the  company  commences  selling  burial 
lots,  and  all  lots  are  sold  under  a  special  provision  whereby  the  company  agrees  to  apply  fifty  per  cent 
of  all  cash  received  on  sales  in  the  purchase  of  four  per  cent  bonds  until  a  total  of  $150,000.00  of  such 
bonds  shall  have  been  so  purchased.  The  agreement  further  provides  that  after  all  the  lots  have  been 
sold  the  company  will  wind  up  its  affairs  and  the  above  bonds,  amounting  to  $150,000.00  shall  be  given 
to  the  city,  which  shall  use  the  income  of  such  bonds  for  keeping  up  the  cemetery.  It  is  the  custom  of 
the  company  not  to  purchase  bonds  until  after  the  close  of  each  fiscal  year,  and  after  the  total  sales  of 
that  year  have  been  determined. 

March,  1905,  the  directors  of  the  company  find  that  while  they  believe  the  books  to  be  in  balance, 
no  proper  entries  have  been  recorded  showing  total  cost  of  their  investment,  and  that  no  entries  have 
been  made  with  respect  to  the  fund  of  $150,000.00  from  which  said  bonds  are  to  be  purchased.  While 
cash  dividends  have  been  declared  and  paid,  the  directors  are  in  ignorance  of  what  their  profits  actually 
have  been,  and  how  much  of  the  dividends  so  received  have  been  out  of  their  profits  and  how  much 
in  the  nature  of  liquidating  dividends,  representing  a  return  of  their  original  investment.  They,  there- 
fore, employ  a  certified  public  accountant  to  determine  all  these  matters,  and  to  make  the  necessary 
entries  on  their  books,  and  render  report  to  them.  After  determining  the  clerical  accuracy  of  the  books 
the  accountant  draws  off  the  two  trial  balances  given  below,  and  from  them  prepares  the  necessary 
entries  and  obtains  the  information  required  by  the  directors. 


53 


TRIAL  BALANCE 

Debits:  Jan.  1,  1900  Jan.  1,  1905 

Real  estate $40,000.00  $40,000.00 

Improvements 45,000.00        45,000.00 

Bonds   125,000.00 

Administration  expense 20,000.00         46,000.00 

Upkeep  of  cemetery 45,000.00 

Dividends  paid 130,000.00 

Cash    7,000.00        40,800.00 


$112,000.00  $471,800.00 
Credits : 

Interest  account  representing  interest  at  4%  on  unexpended 

cash  during  development  period $12,000.00  $12,000.00 

Bond  interest  account 9,800.00 

Sale  of  lots 350,000.00 

Capital  stock 100,000.00  100,000.00 


$112,000.00    $471,800.00 

An  inventory  of  their  unsold  lots  as  on  January  1,  1905,  shows  that  they  have  ten  acres  left 
unsold  of  equally  desirable  character  with  that  already  sold.  Draw  up  entries,  prepare  profit  and 
loss  account  for  period  and- balance  sheet  as  on  January  1,  1905,  in  same  manner  as  if  you  had  been 
the  accountant  engaged.     In  any  interest  calculation  use  4  per  cent.     Simple  interest. 

52.  (From  Michigan  C.  P.  A.  Examination.) 

A  corporation  is  organized  under  the  laws  of  the  State  of  Michigan,  with  Capital  Stock  $250,000.00, 
of  which  $100,000.00  is  preferred  and  $150,000.00  is  common  stock,  shares  $100.00  each.  The  pur- 
chasers of  preferred  stock  at  par  are  to  receive  an  equal  amount  of  common  stock  free,  all  the  preferred 
stock  is  subscribed  and  paid  for,  leaving  $50,000.00  of  common  stock  unsubscribed.  It  is  found  that 
the  remaining  common  stock  cannot  be  sold  for  sufficient  cash  for  requirements  and  the  holders  of  pre- 
ferred stock  donate  to  the  Treasury  $50,000.00  of  their  common  stock.  The  common  stock  is  sold  at 
50c  on  the  dollar. 

Provide  journal  entries  covering  the  above. 

Section  2 — Changing  a  Partnership  to  a  Corporation 

53.  Adams,  Brown  &  Co.,  a  partnership  conducting  a  manufacturing  business,  conclude  to  incor- 
porate. 

A  Balance  Sheet  taken  on  December  31,  1916,  shows  the  following  assets  and  liabilities: 

Balance  Sheet,  December  31,  1915 

Cash    $5,000.00                Accounts  payable $40,000.00 

Accounts   receivable 30,000.00                Adams  capital 50,000.00 

Plant  and  Sundry  Assets.     155,000.00                Brown  capital 50,000.00 

Clarkson  capital 25,000.00 

Davidson  capital    25,000.00 


$190,000.00  $190,000.00 

Profits  and  losses  are  shared  in  proportion  to  capital  investments. 

On  January  1  they  incorporate  the  Tremont  Manufacturing  Company  with  a  capital  stock  of  $200,- 
000,  consisting  of  1000  shares  each  of  common  and  preferred  stock  with  a  par  value  of  $100. 

All  assets  are  taken  over  by  the  new  corporation  except  cash  and  the  liabilities  are  assumed ;  in 
exchange  for  the  property  of  the  old  firm,  900  shares  each  of  preferred  and  common  stock  are  issued 

54 


to  the  partners  in  the  proportion  shown  by  their  capital  accounts,  which  stock  including  the  cash  on 
hand  is  distributed  equitably  among  the  partners.  The  remaining  stock  is  subscribed  for  at  par  by  out- 
side parties,  their  subscriptions  being  paid  in  full  on  January  15th. 

On  February  1,  the  four  incorporators  donate  to  the  corporation  $20,000  of  common  stock  in  pro- 
portion to  their  holdings  to  be  sold  to  produce  further  working  capital. 

April  1,  100  shares  of  the  donated  stock  is  reported  sold  at  an  average  price  of  75. 

a.  Entries  to  close  partnership  books. 

b.  Entries  to  open  corporation  books  and  to  record   succeeding   transactions. 

c.  Balance  sheet  of  the  Tremont  Manufacturing  Company  as  of  April  1,  1916. 

54.  James  Potter  and  Henry  Pickett  have  been  partners  in  the  wholesale  drug  business  for  a 
number  of  years.  They  decide  to  incorporate,  and  a  corporation  to  be  known  as  the  National  Drug 
Company  is  organized  under  the  laws  of  Maine,  with  a  capital  stock  of  $80,000,  $60,000  of  which  is  6% 
Preferred  Stock,  and  the  remainder  Common  Stock. 

The  Balance  Sheet  of  the  partnership  on  July  1,  the  date  of  incorporation  is  as  follows: 

Assets :  Liabilities : 

Cash    $2,000.00                Notes  payable    $2,000.00 

Real  estate 40,000.00                Accounts  payable   8,000.00 

Accounts  receivable    20,000.00                James  Potter,  capital 30,000.00 

Notes  receivable 5,000.00                Henry  Pickett,  capital 30,000.00 

Furniture  and  equipment. .  3,000.00 


$70,000.00  $70,000.00 

All  of  the  preferred  stock  is  issued  in  equal  parts  to  Potter  and  Pickett  in  exchange  for  the  net 
assets  of  the  old  business.  The  common  stock  is  all  subscribed  for  at  par  by  outsiders,  and  their  sub- 
scription is  paid  August  15th. 

Show  in  journal  form  the  entries  necessary  to  bring  on  the  corporation  books  the  assets  acquired 
and  the  liabilities  assumed  together  with  the  issue  of  both  classes  of  stock. 

The  Company  closed  its  books  December  31,  at  which  time  the  Profit  and  Loss  Statement  showed 
a  net  profit  of  $5,496.83.  The  regular  quarterly  dividend  was  declared  on  the  preferred  stock  and  a 
dividend  of  2%  on  the  common  stock,  payable  January  15. 

Show  entries  for  closing  the  Profit  and  Loss  account,  for  the  declaration  of  the  dividends  and  their 
payment. 

55.     (From  Washington   C.   P.   A.   Examination.) 

A  and  B  were  partners,  trading  under  the  name  of  A,  B  &  Co.  June  30,  1908,  the  following  bal- 
ance appears  on  their  ledger : 

A,  Capital  account $70,000.00 

B,  Capital  account   50,000.00 

Real  estate    22,000.00 

Buildings   20,000.00 

Machinery  and  tools 44,000.00 

Furniture  and  fixtures 2,000.00 

Accounts  receivable   50,000.00 

Cash    7,000.00 

Materials  and  merchandise    53,000.00 

Accounts  payable 35,000.00 

Bills  payable 48,000.00 

Bills  receivable 5,000.00 

55 


On  June  30,  1908,  the  business  is  incorporated  as  the  X  Company,  on  the  following  plan : 

1.  Capital  stock,  $150,000.00. 

2.  X  Company  takes  over  the  entire  assets  and  liabilities  of  A,  B  &  Co.  at  the  book  figures  as 
above,  except  (a)  real  estate  of  the  book  value  of  $5,000,  which  is  retained  by  A,  B  &  Co. ;  (b)  the 
accounts  receivable,  which  are  taken  over  at  $48,000,  and  (c)  the  capital  accounts  of  the  partners. 

3.  X  Company  pay  A,  B  &  Co.  $30,000  for  the  good  will  of  the  business. 

4.  Payments  to  A,  B  &  Co.  are  made  as  follows,  viz. :  $50,000  in  first  mortgage  bonds,  and 
the  balance  in  capital  stock  of  X  Company. 

5.  After  paying  off  A,  B  &  Co.  the  remainder  of  the  capital  stock  is  sold  for  cash  to  sundry  per- 
sons. 

The  real  estate  which  is  retained  by  A,  B  &  Co.  is  bought  from  A,  B  &  Co.  by  A,  for  $7,000,  and 
is  charged  to  A's  capital  account. 

After  the  conclusion  of  the  foregoing  described  transactions  A  and  B  dissolve  partnership. 
You  are  required : 

a.  To  prepare  closing  entries  for  the  books  of  A,  B  &  Co. 

b.  A  statement  setting  forth  the  partners'  accounts  down  to  their  final  closing,  beginning  with 
the  balances  shown  by  the  books  on  June  30,  1908. 

c.  Opening  entries  for  the  X  Company. 

56.     (From  Boston  High  School  Examination  for  Commercial  Teachers.) 

Shaw  &  Co.,  a  partnership  conducting  a  manufacturing  business,  conclude  to  incorporate.  The 
firm  has  the  following  assets  and  liabilities : 

Cash -$5,000.00               Accounts  payable $20,000.00 

■      Accounts  receivable    30,000.00                Shaw,  capital    45,000.00 

Plant  and  sundry  assets.  .      165,000.00                Mace,  capital    45,000.00 

Laird,  capital    45,000.00 

Page,  capital 45,000.00 


$200,000.00  $200,000.00 

They  incorporate  the  Shaw  Manufacturing  Co.  with  an  authorized  capital  of  $200,000  divided 
into  1000  shares  of  7%  preferred  stock  and  1000  shares  of  common  stock,  both  classes  of  stock  at  $100 
par  value.  Each  partner  is  to  receive  $25,000  of  the  preferred  stock  and  $20,000  of  the  common  stock 
for  his  share  in  the  business.     The  remainder  of  the  stock  is  to  be  held  for  sale. 

Make  Journal  entries  for  the  following : 

The  partnership  books  are  to  be  closed. 

The  corporation  books  are  to  be  opened. 

Each  of  the  four  shareholders  donates  to  the  corporation  $5000  of  the  common  stock  to  be  sold  at 
such  price  as  will  produce  immediate  cash  capital. 

Sold  the  donated  stock  at  95,  for  half  cash  and  half  note. 

Sold  for  cash  50  shares  common  stock  at  105. 

The  net  profits  for  the  year  were  $17,000. 

A  dividend  was  declared  on  the  preferred  stock,  and  a  dividend  of  6%  was  declared  on  the  shares 
of  common  stock  outstanding. 

At  the  end  of  the  second  year  all  stock  had  been  sold.  The  net  profits  were  $11,000.  To  declare 
the  preferred  dividend  and  a  dividend  of  6%  on  the  common  stock,  it  became  necessary  to  apply 
profits  earned  during  the  preceding  year. 

A  bond  issue  of  $50,000  was  authorized.  At  the  end  of  three  months  $10,000  of  the  bonds  were 
sold  at  101  and  accrued  interest  amounting  to  $125. 

56 


Three  months  later  $10,000  of  bonds  were  sold  at  98  and  accrued  interest,  $250.  "  At  the  end  of 
the  year  bond  interest  was  paid,  $1,000.  $2,498.75  was  set  aside  as  the  first  instalment  of  the  sinking 
fund. 

57.  (From   Washington   C.   P.   A.   Examination.) 

J.   Smith's   Balance  Sheet  showed  the  following  Assets  and  Liabilities : 

Land  and  building $750,000.00 

Merchandise 500,000.00 

Work  in  progress 213,000.00 

Sundry  debtors 275,000.00 

Patent  rights    40,000.00 

Cash  at  bank 25,000.00 

Sundry  creditors 250,000.00 

Sundry  bills  payable 30,000.00 

A  corporation  (J.  Smith,  Sons  &  Co.)  was  formed  to  purchase  the  business  for  the  sum  of  $1,750,- 
000.00,  payable  $500,000.00  in  common  stock,  $500,000.00  in  preferred  stock,  $500,000.00  in  4>^  % 
debentures,  and  the  balance  in  cash,  the  company  agreeing  to  take  over  the  assets  of  J.  Smith 
(with  the  exception  of  the  bank  balance)  and  to  assume  the  liabilities  to  creditors. 

The  capital  stock  of  the  company  was  $2,000,000.00,  divided  into  250,000  common  and  150,000  pre- 
ferred shares  of  $5.00  each. 

50,000  shares  of  common  stock  and  the  balance  of  the  preferred  stock  were  offered  for  sale  to 
the  public,  payable  25%  on  application,  25%  on  allotment  and  50%  one  month  after  allotment.  These 
shares  were  all  sold  and  were  allotted  by  the  company  on  March  1,  1910. 

By  June  30,  1910,  all  moneys  due  thereon  had  been  received  by  the  company  except  the  amounts  due 
on  allotment  and  call  accounts  in  respect  of  200  common  and  100  preferred  shares,  and  the  directors 
had  paid  the  cash  indebtedness  to  the  vendor  and  the  organization  expenses  of  $25,000.00  and  had  de- 
clared the  shares  forfeited  upon  which  allotment  and  calls  were  in  arrears. 

Give  the  entries  which  should  appear  to  record  these  transactions  in  the  company's  journal,  cash 
book   and   ledger.     Give   also   the   company's   balance  sheet  after  the  opening  of  the  books. 

Section  3 — Consolidations 

58.  (From  Pennsylvania  C.  P.  A.  Examination.) 

A  is  an  operating  company  and  B  is  a  holding  company.  The  following  statements  are  taken  from 
the  books  of  the  respective  companies,  viz. : 

A  COMPANY 
Assets : 

Cash  on  hand  $35,000.00 

Book  accounts  receivable 25,000.00 

Stock  inventory   21,000.00 

$81,000.00 

Prepaid  accounts  7,000.00 

Sinking  fund  trustee , .  15,000.00 

Premiums  on  sinking  fund  bonds 700.00 

B  Company  advances 45,000.00 

Investments,  B  Company  stock 25,000.00 

Other  investments    5,000.00 

Plant,  franchises,  etc 1,400,000.00 


$1,578,700.00 


57 


Liabilities: 

Book  accounts  payable $12,000.00 

Wages    ^ 8,000.00 

Bills  payable 50,000.00 

Accrued  accounts    12,000.00 

$82,000.00 

Reserve   accounts    65,000.00 

Bonds   750,000.00 

Capital  stock 500,000.00 

Surplus 181,700.00 


$1,578,700.00 


B  COMPANY 
Assets : 

Cash  on  hand $14,000.00 

Accounts  receivable 6,000.00 


$20,000.00 


Investments : 

A  Company's  stock $500,000.00 

Other  investments 500,000.00 

1,000,000.00 

Plants,  franchises,  etc 1,250,000.00 

Deficit 22,000.00 

$2,292,000.00 

Liabilities :  

Book  accounts  payable   $7,000.00 

Bills  payable    130,000.00 

Accrued  accounts    10,000.00 

$147,000.00 

Due  A  Company 45,000.00 

Bonds  issued 1,100,000.00 

Capital  stock  issued  1,000,000.00 

$2,292,000.00 
Prepare  a  statement  combining  the  assets  and  liabilities  of  the  two  companies. 

59.  The  Smith  Brewing  Co.  with  $1,000,000  capital  stock,  the  Young  Brewing  Co.  with  $500,000  capital 
stock,  and  the  Star  Brewing  Co.  with  $400,000  capital  stock,  agreed  to  consolidate  as  the  Universal 
Brewing  Corporation,  the  new  company  to  buy  all  the  properties  of  the  old  companies  at  a  valuation  to 
be  fixed  by  appraisal,  payment  therefor  to  be  made  in  full-paid  stock  of  the  new  company,  the  old 
companies  to  pay  oflF  their  own  indebtedness. 

The  appraised  values  of  the  old  companies  are  as  follows : 

Smith  Young  Star 

Real  estate  and  buildings $680,000  $327,000  $126,000 

Plant 390,000  160,000  71^000 

Cash    15,000  3,000  1,000 

Bills  receivable    10,000  6,000                  

Horses,  wagons  and  harness 4,000  3,000  1,500 

Office  furniture 1,000  1,000  500 

Total $1,100,000  $500,000  $200,000 

Total  appraised  value $1 ,800,000 

58 


On  this  valuation  the  Universal  Brewing  Corporation  issued  $2,000,000  of  stock,  shares  $100  each, 
which  was  divided  pro  rata  among  the  old  companies  on  the  basis  of  their  appraised  value,  no  frac- 
tional shares  of  stock  to  be  issued,  odd  amounts  to  be  paid  old  companies  in  cash. 

Give  journal  entries  to  set  up  property  accounts  and  credit  old  companies  with  their  pro  rata  on 
the  books  of  the  new  company. 

At  the  time  of  the  consolidation  the  ledger  accounts  of  the  Star  Brewing  Company  were  as 
follows : 

Real  estate  and  buildings  $250,000 

Plant 247,000 

Cash 1,000 

Horses,  wagons  and  harness 1,800 

Office  furniture 1,200 

$501,000 

Capital  stock $400,000 

Bills  payable 50,000 

Accounts  payable 51,000 


$501,000 


Make  the  proper  journal  entries  to  liquidate  in  stock  of  the  new  company  the  liabilities  other  than 
capital  stock,  to  apportion  the  remaining  stock  and  cash,  and  to  close  the  books  of  the  Star  Brewing 
Company. 

60.     (From  Massachusetts  C.  P.  A.  Examination.) 

A.  B.  Co.  was  an  old  established  corporation  with  a  capital  stock  liability  of  $600,000.  C.  D.  Co. 
was  a  corporation,  organized  June  1,  1907,  at  which  time  it  issued,  for  cash,  $1,000  of  $600,000  capital 
stock  authorized.  The  $1,000  capital  stock  issued  by  C.  D.  Co.  was  acquired  by  A.  B.  Co.,  June  1,  1907. 
The  par  value  of  the  shares  of  both  corporations  was  $100.  December  31,  1907,  C.  D.  Co.  bought  of 
A.  B.  Co.,  all  of  the  latter's  property,  except  the  ten  shares  stock  of  C.  D.  Co.,  and  assumed  all  of  the 
debts  of  A.  B.  Co. ;  issuing  to  the  latter,  in  settlement  therefor,  the  remainder  of  C.  D.  Co's.  author- 
ized capital  stock;  entered,  in  its  books,  the  property  acquired  and  debts  assumed,  at  the  respective 
amounts  shown  in  the  books  of  A.  B.  Co.;  and  continued  as  a  going  concern.  At  the  same  date,  A.  B. 
Co.  liquidated  its  affairs,  distributing  to  its  shareholders  the  capital  stock  which  it  received  from 
C.  D.  Co. 

Balance  Sheet  of  A.  B.  Co.,  December  31,  1907 

Cash  advanced  to  C.  D.  Co.,  C.  D.  Co.,  current  account..  $31,600 

December  31,  1907 $21,800  Notes  payable • 125,000 

Notes  receivable    42,000  Accounts  payable 43,400 

Accounts  receivable' 145,200  Capital   Stock  Acct 600,000 

Merchandise    540,000  Profit  and  Loss  Acct 100,000 

Real  estate  and  machinery...  150,000 

Stock  of  C.  D.  Co. 1,000 


$900,000  $900,000 

The  trial  balance  of  C.  D.  Co.  contained  a  credit:  "Cash  advanced  by  A.  B.  Co.,  December  31, 
1907,  $21,800";  and  a  debit:  "A.  B.  Co.,  Current  Account  $31,600."  Write  the  journal  entries,  stating 
sufficient  explanation  for  each,  to  close  the  books  of  A.  B.  Co.,  and  to  spread  the  above  transactions  of 
December  31,  1907,  on  the  books  of  C.  D.  Co. 

59 


61.     (From  Massachusetts  C.  P.  A.   Examination.) 

Prepare  a  consolidated  balance  sheet  of  "A  Company,"  a  manufacturing  corporation  which  also 
controls  through  stock  ownership  "B  Company." 

The  following  are  trial  balances  of  the  books,  December  31,  1915. 

A  COMPANY 

Dr.  Cr. 

Real  estate $200,000.00 

Machinery  and  equipment 100,000.00 

Accounts  receivable 50,000.00 

Cash    10,000.00 

Inventories,  Dec.  31,  1915 75,000.00 

Shares  "B  Company"— 300  shares,  par  $10Q 35,000.00 

"B  Company"  current  account 5,000.00 

Capital    $400,000.00 

Accounts   payable 30,000.00 

Bills  payable 20,000.00 

Surplus 19,000.00 

Profit  and  loss  for  1915 6,000.00 


$475,000.00    $475,000.00 

B  COMPANY 

Dr.  Cr. 

Accounts  receivable    $45,000.00 

Stock  on  hand,  Dec.  31,  1915 25,000.00 

Cash    5,000.00 

Treasury  stock,  $100  share  cost 11,000.00 

Furniture  and  fixtures  3,500.00 

Surplus $20,000.00 

"A  Company"  current  account 4,500.00 

Accounts  payable 10,000.00 

"A  Company"  drafts  accepted 5,000.00 

Capital  stock  (500  shares,  par  $100) 50,000.00 

$89,500.00      $89,500.00 

The  stock  on  hand  of  the  "B  Company"  was  manufactured  by  "A  Company"  and  billed  to  "B  Com- 
pany" at  10%  in  excess  of  cost  at  which  value  it  is  taken  in  the  inventory.  The  difference  in  the  inter- 
company current  accounts  consists  of  a  note  issued  by  "B  Company"  in  settlement  of  a  claim  for 
damages  but  not  entered  on  the  books  and  was  paid  by  "A  Company."  The  "B  Company"  directors 
declared  a  dividend  of  13^%  on  December  15,  1915,  payable  January  15,  1916,  which  has  not  been 
entered  on  the  books. 


60 


62.  (From  Massachusetts  C.  P.  A.  Examination.) 

Smith  Company  and  Jones  Company  being  pressed  by  their  bankers  and  obHged  to  pay  off  their 
loans,  agree  to  consolidate.     Their  liabilities,  capital  and  earnings  are  as  follows : 

Smith  Co.      Jones  Co. 

Common  stock  $200,000.00    $100,000.00 

Five  per  cent  bonds 100,000.00  Nil 

Six  per  cent  loans    25,000.00       50,000.00 

Surplus 30,000.00  Nil 

$355,000.00  $150,000.00 

Together $505,000.00 

Earnings  available  for  interest  and  dividends $22,500.00  $10,000.00 

Together    $32,500.00 

Smith  Company  issue  $100,000  additional  common  stock  and  $100,000  additional  bonds  and  buy  up 
Jones  Company  which  will  be  liquidated.  The  total  expenses  of  liquidation  and  issue  of  new  stock 
and  bonds  amount  to  $10,000,  and  the  cash  balance  will  be  increased  by  $15,000.  No  increased 
profits  are  anticipated  from  the  consolidation  but  it  is  considered  that  the  earnings  of  $32,500  can  be 
maintained.  Owing  to  the  condition  of  Jones  Company  it  is  decided  that  its  stockholders  should 
receive  $1,000  less  income  per  annum. 

a.  How  much  of  the  $100,000  of  additional  capital  stock  of  Smith  Company  should  be  issued  to 
the  stockholders  of  Jones  Company,  and  how  much  is  available  for  stock  dividend  to  Smith  Company 
stockholders  ? 

b.  Show  the  entries  to  record  all  the  transactions  on  the  books  of  Smith  Company. 

Section  A — Sinking  Funds 

63.  (From  Massachusetts  C.   P.  A.   Examination.) 

X.  Y.  Z.  Corporation  has  an  authorized  issue  of  $5,000,000  first  mortgage  5%  bonds,  in  $1,000  de- 
nominations ;  $2,502,000  of  these  are  in  the  hands  of  the  public,  and  the  balance  in  escrow  in  the  hands 
of  trustees,  to  be  taken  down  only  to  take  up  the  bonds  of  underlying  companies,  or  for  new  construc- 
tion up  to  80%  of  the  expenditures ;  but  the  net  earnings  above  operating  expenses  and  taxes  for  the 
previous  year  must  equal  at  least  1^  times  the  interest  on  all  outstanding  bonds  including  those  to  be 
taken  down.  The  net  earnings  for  a  certain  year  were  $273,990.44.  There  were  also  in  the  hands  of 
the  public  the  following  bonds  of  subsidiary  companies :  $106,000  5s,  and  $295,500  A-y^s.  The  expendi- 
tures for  construction  amounted  to  $300,000. 

State  how  many  bonds  can  be  taken  down  for  construction,  showing  how  you  arrive  at  the  result. 

64.  (From  Massachusetts  C.  P.  A.   Examination.) 

Prepare  a  balance  sheet  at  June  30,  1916,  from  the  following  data: 

The  X.  Y.  Z.  Company  was  incorporated  January  1,  1914,  with  5,000  shares  of  stock  having  no  par 
value;  $200,000.00  was  paid  into  the  company  for  which  3,000  shares  of  stock  were  issued,  2,000  shares 
and  $50,000  were  given  for  water-power  rights  and  land  valued  at  $150,000,  and  $100,000  was  expended 
in  constructing  and  equippingan  electric  power  plant  which  started  operating  July  1,  1914.  Organi- 
zation expenses  were  $2,000.     Salaries  and  office  expenses  up  to  July  1,  1914,  were  $10,000. 

After  operating  a  few  months  it  was  decided  to  build  an  additional  power  plant  to  finance  which 
$200,000  par  value  1st  mortgage  5%  20-year  bonds  (interest  semi-amnually)  were  issued  in  denomin- 
ations of  $500  and  $1,000  and  sold  at  98  on  January  1,  1915.  The  construction  expenditures  for  the 
new  plant  were  $175,000  and  it  was  completed  and  put  into  operation  July  1,  1915. 

61 


The  mortgage  deed  of  trust  provides  that  a  sinking  fund  of  $5,000  be  set  aside  on  December  31st 
of  each  year  out  of  profits  for  the  first  ten  years  and  $15,000  per  year  thereafter  with  which  to  retire 
bonds  at  101  each  year.  The  two  power  plants  have  been  depreciated  at  the  rate  of  5%  per  annum 
on  the  cost,  starting  from  the  date  when  operations  commenced.  The  gross  earnings  from  July  1, 
1914,  to  June  30,  1916,  were  $85,000,  of  which  $45,000  was  collected,  and  the  operating  costs  paid,  exclu- 
sive of  depreciation,  were  $40,000. 

65.  (From   Massachusetts  C.   P.  A.   Examination.) 

A  corporation  authorized  a  total  issue  of  $500,000  of  5%  bonds  in  denominations  of  $1,000  and 
$500  with  interest  payable  January  1st  each  year  and  sold  the  whole  issue  to  underwriters  January  1, 
1914,  at  90.  The  company  issued  the  bonds  for  the  underwriters  at  95  and  received  the  cash  in  pay- 
ment February  1,  1914. 

The  trust  deed  provides  that  "there  shall  be  established  a  fund  to  be  called  the  Bond  Sinking 
Fund,  to  the  account  of  which  there  shall  on  the  31st  day  of  December  of  each  year  be  carried  a  sum 
equal  to  seven  per  cent  of  the  total  par  value  of  the  bonds  issued,  and  that,  out  of  the  moneys  so 
carried  to  the  account  of  the  said  fund,  the  company  shall  pay  the  interest  on  the  bonds  as  the  same 
becomes  due,  and  the  balance  of  said  moneys  shall  be  expended  each  year  in  purchasing  the  bonds 
of  the  company  in  the  open  market." 

In  January,  1915,  the  company  purchased  $10,000  of  its  bonds  at  97  and  retired  and  cancelled 
them.     In  January,  1916,  the  market  price  of  the  bonds  is  98. 

a.  How  many  bonds   may   be   purchased   from  the  Bond  Sinking  Fund  in  January,  1916? 

b.  Make  journal  entries  for  all  the  transactions  from  the  date  of  the  sale  of  the  bonds  to  and 
including  the  purchase  for  the  Sinking  Fund  in  January,  1916. 

c.  Show  trial  balance  after  posting  above  entries. 

Section  5 — Receiverships  and  Bankruptcy 

66.  The  John  Smith  Company  finds  itself  in  financial  difficulties  and  the  proper  legal  proceedings 
having  been  folloAved,  a  trustee  is  appointed  to  take  charge  of  the  affairs  of  the  concern.  The  follow- 
ing trial  balance  was  taken  from  the  books  on  October  1,  1916: 

JOHN  SMITH  COMPANY 

f  Trial  Balance — October  1,  1916 

Cash  on  hand $30.00  Accounts  payable    $8,000.00 

Cash  in  bank  250.00  Notes  payable    2,000.00 

Merchandise    1,300.00  Loan  payable   1,300.00 

Accounts  receivable    5,850.00  Notes  receivable  Disct 1,500.00 

Machinery   3,000.00  Mortgage  payable   7,000.00 

Real  estate 12,000.00  Wages  accrued 150.00 

Securities  owned   1.500.00         ~     Taxes  accrued 60.00 

Deficit  1,080.00  Capital  stock 5,000.00 


$25,010.00  $25,010.00 

Of  the  items  listed  above,  it  is  estimated  that  the  merchandise  on  hand  will  sell  for  $950;  of  the 
accounts  receivable  $4,000  are  thought  to  be  good,  $1,200  bad,  and  $650  doubtful  of  collection,  and  it  is 
estimated  that  about  $4,100  will  be  collected;  the  machinery  will  bring  $1,000  at  forced  sale;  the  real 
estate  is  appraised  at  $9,000  and  is  mortgaged  for  $7,000 ;  the  secivrities  owned  have  a  market  value  of 
$1,000  and  are  pledged  as  collateral  for  a  loan  made  to  the  company  amounting  to  $1,300. 

62 


In  order  to  realize  on  the  merchandise  on  hand  to  the  best  advantage  the  trustee  made  purchases 
amounting  to  $3,500,  of  which  $1,500  was  for  cash,  and  the  entire  stock  of  merchandise  was  disposed 
of  for  $4,350.  The  trustee  collected  $4,400  on  accounts  receivable.  The  machinery  was  sold  for 
$1,000.  The  real  estate  was  sold  for  $9,500.  of  v^hich  $7,060  went  to  the  mortgagee  for  principal  and 
interest.     The  securities  were  sold  for  $1,035. 

The  payments  made  by  trustee  on  account  of  expenses  were  as  follows:  wages,  $760;  taxes,  $60; 
office  expenses,  $350;  trustee's  commissions,  $250. 

Interest  on  cash  on  deposit  was  allowed,  $15.00.  After  the  liquidating  expenses  and  preferred 
claims  had  been  paid,  the  cash  remaining  in  the  business  was  distributed  among  the  unsecured  creditors 
in  the  proper  proportion.  ' 

The  outstanding  stock  certificates  are  then  canceled  and  the  affairs  of  the  company  permanently 
closed. 

Prepare  Realization  and  Liquidation  account  and  Trustee's  cash  account. 

67.  (From   Massachusetts  C.   P.  A.   Examination.) 

The  accounts  of  a  partnership  include :  '    '» 

Cash $1,400.00 

Merchandise    15,000.00 

Accounts  receivable 20,000.00 

Notes  receivable 4,000.00 

Machinery   7,000.00 

Real  estate    5,000.00 

Investments    2.500.00 

Mortgage  payable  on  real  estate 3,000.00 

Notes  payable 16,000.00 

Accounts  payable 35,000.00 

Taxes  due 500.00 

Wages  due 1,000.00 

Rent  due 700.00 

Notes  receh^able  discounted 3,000.00 

Partners  accounts 12,000.00 

All  the  investments  are  pledged  as  collateral  on  $1,500  Notes  Payable.  Of  the  Accounts  Receiv- 
able, $1,000  are  considered  bad,  $2,500  doubtful  and  worth  50%  of  book  value,  and  the  balance  good. 
Real  Estate  is  undervalued  10%.  Merchandise  is  subject  to  a  discount  of  25%.  Machinery  is  over- 
valued 25%.  $2,000  Notes  Receivable  Discounted  has  been  paid  by  makers.  Expense  of  liquidation 
estimated  to  amount  to  $1,500.     The  partners   have  personal  estates  valued  at  $4,000. 

Prepare  such  statements  as  seem  desirable  under  the  circumstances,  and  state  probable  amount 
for  distribution  among  creditors. 

68.  (From  Illinois   C.   P.  A.   Examination.) 

On  December  1,  1907,  the  following  particulars  are  furnished  of  the  position  of  John  Mapleton. 
insolvent:  Factory  equipment  cost,  $15,000.00;  estimated  to  realize  $10,000.00.  Stock  of  finished 
goods,  $10,000.00;  estimated  worth,  $7,500.00.  Material  and  supplies,  $2,500.00;  estimated  worth,  $1.- 
000.00.  Furniture  and  fixtures,  $900.00;  estimated  worth,  $200.00.  Investments  valued  at  $25,275.00, 
of  which  $15,000.00  is  held  by  bankers  as  security  for  loan  of  $12,000.00.  Accounts  receivable,  $6,- 
250.00,  of  which  $2,500.00  are  good,  $1,250.00  bad,  and  $2,500.00  estimated  to  realize  $1,500.00.  Cash, 
$575.00,  of  which  $25.00  represents  petty  expense  items  not  charged  up,  and  $50.00  and  I.  O.  U.  of  a 
former  employe  which  is  worthless.  Accounts  Payable,  $28,500.00.  Bills  Payable,  $25,000.00.  of  which 
$12,000.00  is  due  bankers.  Wag£S  due,  $500.00.  Rent  due  and  past  due,  $1,000.00.  Capital  on  January 
1,  1907,  as  shown  by  books,  $15,000.00.  Loss  by  sale  of  investment.  May  1,  1907,  $5,000.00.  Loss  in 
trading  account  January  11,  1907,  to  December  1,  1907,  $3,500.00.  Drawings  charged  personal  account 
of  John  Mapleton,  $1,000.00. 

Make  up  a  Statement  of  Affairs  and  a  Deficiency  account. 

63 


69.     (From  Missouri  C.   P.  A.   Examination.) 

The  following  is  a  trial  balance  of  the  books  of   the   X.   Y.   Z.    Mfg.    Company,  which   has   been 
declared  bankrupt : 

Trial  Balance  at  June  30,  1914 

Dr.  Cr. 

Real  estate  and  buildings $125,000  

Capital  stock $300,000 

Machinery  and  equipment. 160,000  

Customers'  accounts  receivable 170,000  

Notes  payable 250,000 

Accounts  payable 312,000 

Insurance  premiums  unexpired '. 3,000  

Mortgage  on  buildings 65,000 

Notes  receivable    26,000  

Interest  accrued  on  mortgage 2,500 

Cash  on  hand  and  in  bank 6,500  

Inventory  of  raw  material 85,000  

Inventory  of  finished  goods 121,000  

Investments 12,000  

Deficit     221,000  


$929,500     $929,500 

The  real  estate  and  buildings  are  appraised  at  $101,000.00  and  the  machinery  and  equipment  at 
$135,000.00.  An  examination  of  the  customers'  accounts  shows  the  following  condition:  Good,  $95,- 
000.00.  Doubtful  (expect  to  collect  33  1/3%),  $51,000.00.  Bad,  $24,000.00.  The  holders  of  the  notes 
payable  of  $12,000.00  hold  notes  receivable  in  security  of  face  value  of  $15,000.00,  but  worth  only  $10,- 
000.00.  A  creditor  of  $55,000.00  on  open  account  has  in  his  possession  the  stock  certificates  for  the  in- 
vestments assigned  in  blank  and  finished  goods  pledged  to  the  value  of  $16,000.00.  The  insurance 
premiums  unexpired  have  a  cash  value  of  $2,200.00.  An  examination  of  the  notes  receivable  shows  $9,- 
000.00  good  for  collection  and  $17,000.00  doubtful  on  which  50%  will  be  collected.  The  investments 
have  a  marketable  value  of  $16,500.00. 

Prepare  statement  of  affairs  for  submission  to  creditors  showing  the  amount  on  the  dollar  the  credi- 
tors may  expect  to  receive ;  also  prepare  deficiency  statement. 

70.     (From  Examination  for  Admittance  to  the  American  Institute  of  Accountants.) 

BALANCE  SHEET  OF  AB 

Real  estate  $140,000.00        Capital    $229,652.00 

Equipments    75,150.00        Mortgages  on  real  estate 75,000.00 

Patents   54,700.00        Accounts  payable   124,615.24 

Investments   33,500.00        Notes  payable 80,000.00 

Cash    4,348.64        Reserve  for  depreciation 821.00 

Notes  receivable 2,479.75 

Accounts  receivable 31,108.15 

Inventories    81,423.70 

Good  will 40,000.00 

Trading  losses 47,378.00 


$510,088.24  $510,088.24 

Ab,  whose  balance  sheet  appears  above,  having  been  unfortunate  in  business,  goes  into  liquida- 
tion.   Prepare  statement  of  aflfairs  and  deficiency  account. 

The  real  estate  is  valued  at  $90,000,  the  equipment  at  $30,000.  The  patents  are  considered  worth- 
less, with  the  exception  of  one  thought  to  have  a  market  value  of  $5,000.  Bonds,  with  a  par  value  of 
$27,500,  were  pledged  to  secure  a  collateral  loan  of  $25,000.    These  have,  however,  shrunk  in  value  so 

^64 


as  to  be  worth  at  present  prices  only  $22,000.  Included  in  investments  are  $5,000  other  bonds  which 
are  clearly  worthless ;  the  other  investments  have  a  doubtful  value  of  50  per  cent.  The  notes  receivable 
are  thought  to  be  good.  Of  the  accounts  receivable  $10,000  are  known  to  be  good,  $5,000  are  known 
to  be  bad,  and  the  remainder  are  expected  to  pay  8o  per  cent.  The  inventories  are  estimated  as  worth 
not  more  than  half  of  their  book  value.  Good  will  is  purely  fictitious.  Interest  accrued  on  the  mort- 
gage is  $800,  on  notes  payable,  $523.    Wages  accrued  are  $1,200. 

Assuming  the  foregoing  estimates  of  value  are  correct  and  the  expenses  of  liquidation  amount  to 
$3,000,  what  percentage  of  their  claims  will  the  general  creditors  receive? 


65 


PART  IV 
FINANCIAL  STATEMENTS 

71.     Walter  G.  Hill,  Trial  Balance,  December  31,  1916. 

Land   (cost) $20,750.00 

Wharves  and  structures  (book  value) 12,625.00 

Office  building  (book  value) 9,726.00 

Horses,  wagons  and  equipment  (book  value) 4,221.40 

Office  equipment  (book  value) 2,169.75 

Cash    6,785.90 

Accounts  receivable    .- 149,678.40 

Notes  receivable 2,560.00 

Office  supplies  in  hand 240.00 

Inventory  December  31,  1915  (cost) 90,284.50 

Accounts  payable 

Notes  payable 

Sales    

Sales  returns  and  allowances 12,738.60 

Purchases    608,205.75 

Purchase  returns  and  allowances 

Wages  of  yardmen  and  helpers 9,689.42 

Stable  expenses   6,139.60 

Selling  expenses 27,196.41 

General  administrative  expenses 46,132.90 

Interest  on  notes  receivable 

Loss  on  Bad  accounts  and  notes  receivable ' 1,624.00 

Cash  discounts  on  purchases 

Cash  discounts  on  sales 960.47 

Interest  on  notes  payable 400.00 

Walter  G.  Hill — capital  account 

Walter  G.  Hill — drawings  account 2,977.06 


$52,869.36 

40,000.00 

734,432.46 


14,768.91 


462.91 

1.729.42 

170.842.10 


$1,015,105.16   $1,015,105.16 

Inventory  December  31,  1916,  $72,237.60. 

Mr.  Hill  conducts  a  lumber  business  in  Boston. 

The  real  estate  consists  of  waterfront  property  and  includes  wharfage,  office  building,  stable  and 
sheds  for  the  storage  of  lumber. 

The  charges  for  freight  and  towing  are  added  to  the  invoice  cost  of  the  lumber  when  it  is  received 
and  is  charged  directly  to  the  purchases  account. 

The  yardmen  and  helpers  unload  and  pile  the  lumber  and  load  the  teams  when  orders  are*  filled. 

Stable  expenses  include  stable  supplies  used,  repairs  to  wagons,  fodder,  veterinary's  charges,  depre- 
ciation and  wages  of  drivers. 


^ 


REQUIRED: 

a.  Profit  and  Loss  Statement. 

b.  Balance  Sheet  (fixed  assets  first). 

c.  Closing  entries. 

d.  Mr.  Hill's  business  is  a  growing  one  and  he  desires  to  expand  it  considerably.  With  this  idea 
in  mind  he  applies  at  his  bank  for  a  loan  of  $60,000.00  for  the  purchase  of  a  lot  of  land  adjoining  his 
present  property  and  the  erection  of  new  structures.  He  submits  the  statements  which  3'ou  have  just 
prepared  as  a  basis  for  the  loan.  Would  you,  as  credit  manager  of  the  bank,  approve  this  loan?  Give 
reasons  for  your  answer. 

72.     Johnson  and  Marvin,  Adjusted  Trial  Balance,  June  30,  1915. 

Office  furniture  (book  value) $1,625.00 

Store  furniture  and  fixtures  (book  value) 3,970.00 

Machinery  (book  value) 2,260.00 

Cash    : 37,902.40 

Imprest  cash  fund 250.00 

Accounts  receivable   167,842.60 

Amounts  due  from  consignees . . , 28,249.00 

Notes  receivable 66,209.40 

Interest  accrued  on  notes  receivable 1,780.50 

Merchandise  on  hand,  Dec.  31,  1914  (cost) 160,263.75 

Goods  in  hands  of  consignees  (cost) 20,189.50 

Insurance  prepaid  2,940.83 

Stationery  on  hand 540.00 

Accounts  payable $160,290.40 

Notes  payable 95,530.50 

Interest  accrued  on  notes  payable 1,650.80 

Taxes  accrued    780.00 

Sales    690,607.00 

Sales  returns  and  allowances 7,890.60 

Purchases  532,738.00 

Purchase  returns  and  allowances 8,921.20 

Freight  inward 2,769.80 

Sales  of  consigned  goods  (gross  profit) 26,170.80 

Advertising  25.962.50 

Salaries  of  salesmen 47,580.00 

Traveling  expenses  48,260.25 

Delivery  expense 5,445.70 

Miscellaneous  store  expense ., 6,699.22 

Office  salaries 23,752.80 

Office  supplies  used 19.260.50 

Taxes  and  insurance 5.326.70 

Altering  and  trimming  department  expenses 5,740.90 

Commissions 24.236.50 

Interest  earnings   5,290.00 

Interest  charges 10,250.15 

Cash  discounts  on  purchases 4,659.00 

Cash  discounts  on  sales 1 ,769.80 

J.  T.  Johnson— capital 194.460.00 

J.  T.  Johnson — drawings 19,763.00 

C.  R.  Marvin— capital 98.346.00 

C.  R.  Marvin— drawings 5,237.00 


$1,286,706.40   $1,286,706.40 
Merchandise  on  hand  June  30,  1915  (cost),  $210,730.00. 

67 


COMMENTS: 

Messrs.  Johnson  and  Marvin  conduct  a  wholesale  millinery  business.  They  rent  the  second  and 
third  floors  of  a  large  building  in  the  wholesale  district  of  Boston.  Profits  are  shared  in  the  propor- 
tion of  two-thirds  to  Mr.  Johnson  and  one-third  to  Mr.  Marvin. 

In  this  line  of  business  there  are  two  busy  seasons,  from  January  15  to  April  15,  and  from  August 
1  to  October  1.  The  chances  of  goods  suddenly  becoming  more  or  less  unsaleable  because  of  changing 
styles  and  the  possibility  of  purchasing  goods  which  will  not  appeal  to  the  buying  public  are  large. 
While  profits  are  large  they  must  necessarily  be  so,  for  the  busy  seasons  must  pay  for  the  dull.  If  a 
business  of  this  kind  is  well  conducted,  when  the  semi-annual  statements  are  made  out  the  stock  should 
be  pretty  well  reduced  and  the  business  of  the  past  season  cleaned  up  in  so  far  as  possible.  This  is 
essential  in  order  that  the  business  may  be  in  proper  shape  to  start  upon  the  activities  of  the  ap- 
proaching season. 

The  concern  owns  several  sewing  machines  and  other  small  machines  which  are  used  in  remodel- 
ing and  trimming  hats,  either  to  suit  the  requirements  of  purchasers  or  because  certain  styles  have 
become  unsaleable.  This  work  is  carried  on  in  a  separate  room.  The  expenses  of  this  department, 
which  include  wages  of  operators,  supplies  used,  etc.,  are  charged  to  an  account  called  "altering  and 
trimming  department  expenses."  Inasmuch  as  these  expenses  effect  the  cost  of  the  goods  sold,  they 
should  be  included  in  that  part  of  the  Profit  and  Loss  Statement  which  is  used  to  arrive  at  the  gross 
profit  on  sales.  Presumably  a  certain  proportion  of  these  expenses  is  included  in  the  cost  of  goods  on 
hand. 

The  concern  makes  a  practice  of  sending  out  certain  goods  on  consignment  to  be  sold  for  a  com- 
mission by  the  consignees.  When  a  shipment  of  this  kind  is  made  and  entry  is  made,  an  entry  is  made 
debiting  "Goods  in  Hands  of  Consignees"  and  crediting  "Purchases"  for  the  cost  of  the  goods  shipped. 
When  the  goods  are  reported  sold  an  entry  is  made  crediting  "Sales  of  Consigned  Goods"  for  the 
selling  price,  charging  "Commission"  for  the  commission  charged  by  the  consignee  and  "Amounts  Due 
from  Consignees"  for  the  difference  between  the  commission  charged  and  the  selling  price.  Another 
entry  is  then  made  debiting  "Sales  of  Consigned  Goods"  and  crediting  "Goods  in  Hands  of  Consignees" 
for  the  cost  of  the  goods  sold.  Cash  received  from  consignees  is  credited  to  the  "Amounts  Due  from 
Consignees"  account  through  the  Cash  Book.  The  balance  of  the  "Sales  of  Consigned  Goods"  account 
thus  shows  the  gross  profit  on  sales  of  consigned  goods.  When  making  up  the  Profit  and  Loss  State- 
ment this  figure  should  appear  just  below  and  as  an  addition  to  the  gross  profit  and  sales  made  by  the 
home  office  in  order  to  arrive  at  the  total  gross  profit  on  sales. 

REQUIRED : 

a.  Profit  and  Loss  Statement. 

b.  Balance  Sheet  (current  assets  first). 

c.  Write  up  the  closing  entries  up  to  and  including  the  point  at  which  the  gross  trading  profit  is 
closed  into  the  Profit  and  Loss  account  (omit  explanations,  but  skip  a  line  between  each  entry). 

d.  On  July  15,  1915,  the  concern  applied  to  the  First  National  Bank  for  a  loan  of  $50,000.00. 
Would  you,  as  credit  man  for  the  bank,  approve  this  loan,  basing  your  decision  on  the  statements  just 
made  up?    Give  reasons  for  your  answer. 

e.  The  inventory  of  June  30,  1915,  is  stated  at  $210,730.  Of  this  amount  $1,680  was  included  as 
the  proper  proportional  part  of  the  altering  and  trimming  department  expenses  for  the  period.  Of  the 
remaining  $209,050  how  much  represents  the  invoice  cost  of  the  proper  portion  of  freight  inward? 

f.  The  firm  operates  a  "Voucher  Register"  as  a  part  of  its  accounting  system.  Rule  up  and  sup- 
ply heading  for  what  you  think  would  be  a  suitable  voucher  register  for  this  business. 


68 


72>.     G.  W.  Brown  &  Co.,  Trial  Balance,  June  30,  1914. 

G.  W.  Brown,  capital 

L.  L.  Logan,  capital 

Merchandise    

Expense   

Merchandise  discount 

Furniture  and  fixtures • 

Real  estate 

Discount   

Interest    

Bills  receivable 

Accounts  receivable 

Bills  payable 

Accounts  payable    

Shipment  No.  1 

Shipment  No.  2 

Shipment  No.  3  (cost) 

Cash    


$10,452.74 

10,340.24 

$3,342.80 

549.62 

133.77 

217.21 

207.90 

7,125.00 

32.11 

81.77 

2.04 

25.24 

1,317.72 

2,559.94 

2,742.27 

4,686.37 

302.50 

336.87 

518.60 

484.50 

1,955.00 

11,320.21 

$29,367.21        $29,367.21 


There  is  no  merchandise  on  hand,  as  a  fire  on  the  25th  destroyed  most  of  the  goods ;  the  portion 
of  the  goods  damaged  by  the  fire  was  sold  in  bulk  to  Fletcher  Bros,  at  a  nominal  price. 

The  building  at  246  Main  St.  was  also  burned;  the  lot  on  which  the  building  stood  is  estimate^ 
to  be  worth  $6,000.  .  .; 

Furniture  and  Fixtures  were  a  total  loss. 

No  returns  have  been  received  from  Shipment  No.  3 ;  it  is  valued  at  cost,  as  shown  in  the  trial 
balance. 

An  analysis  of  the  Merchandise  account  shows  the  following:  Inventory  June  1,  $3,372.55;  Pur- 
chases for  June,  $14,152.39;  Freight  and  Cartage  In,  ^hJl.Til;  Sales  to  time  of  fire,  $10,059.46;  Sale  of 
goods  damaged  by  fire  to  Fletcher  Bros,  for  $1,500;  insurance  received  on  stock  lost  by  fire,  $3,000; 
cost  of  goods  destroyed  by  fire,  $'',920.38;  cost  of  goods  shipped  to  commission  merchants,  $2,745.50. 

Make  adjusting  entry  necessary  to  close  the  Merchandise  account  and  open  accounts  with  the  fol- 
lowing:    Inventory,  purchases,  sales,  freight  and  cartage  in,  fire  loss. 

An  analysis  of  the  Real  Estate  account  shows  a  debit  representing  cost  of  $12,125  and  a  credit  of 
$5,000,  being  insurance  received  on  the  building. 

The  Capital  Account  of  G.  W.  Brown  shows  New  Worth  of  $10,240.24,  brought  down  from  May, 
plus  a  credit  for  salary  of  $125  and  for  traveling  expenses  paid  from  his  personal  funds  of  $87.50;  the 
account  of  L.  L.  Logan  shows  investment  of  $10,240.24,  plus  a  credit  for  salary  of  $100. 

a.  Make  adjusting  entries  necessary. 

b.  Adjusted  Trial  Balance. 

c.  Statement  showing  Fire  Loss. 

d.  Profit  and  Loss  Statement  showing  first  the  profit  on  sales  to  time  of  fire,  followed  by  the  final 
net  loss. 

e.  Balance  Sheet. 

f.  Closing  Entries.  .     - 


69 


74.     Taylor,  Wood  &  Co.,  Trial  Balance,  September  30,  1914. 

F.  H.  Taylor,  capital 

C.  F.  Woods,  capital 

L.  F.  Johnson,  capital 

F,  C.  Ta}  lor,  drawing 

C.  F.  Wood,  drawing 

L.  F.  Johnson,  drawing 

Notes  receivable  

Interest 

Accounts  receivable   

Inventory,  September  1 

Shipping  supplies   

Office  supplies   

Insurance  

Horses  and  wagons 

Furniture  and  fixtures 

Real  estate 

Notes  payable 

Accounts  payable " 

Traveling  expenses 

Rent *  . . 

Discount   

Freight  inward 

Purchases 

Wamsutta  Mills  stock 

Office  salaries 

Shipping  Department  salaries 

Delivery  expenses  , 

Sales 

Discounts  on  purchases 

Discounts  on  sales 

Collection  and  exchange 

Returned  purchases 297.84 

Returned  sales 172.20 

Reserve  for  bad  debts 121.60 

Office  expenses 15.00 

Cash ,. 5,365.70 


-"^Jl 

''x  ■ 

$16,578.04 

'V 

24,831.48 

^^ 

^   2,602.03 

$100.00 

\ 

50.00 

A 

\    35.00 

1,000.00 

' 

35.04 

10,740.46 

23,525.05 

196.50 

f 

192.75 

267.50 

742.50 

2,475.00 

12,150.00 

5.000.00 

7,181.84 

225.00 

300.00 

3.60 

47.59 

7,597.27 

1,150.00 

655.00 

65.00 

111.75 

10,593.69 

61.27 

112.43 

7.45 

$67,302.79        $67,302.79 

The  above  accounts  are  representative  of  a  wholesale  dry  goods  business  conducted  by  three  part- 
ners under  the  firm  name  of  Taylor,  Wood  &  Co.    The  trial  balance  covers  a  period  of  one  month. 

The  merchandise  on  hand  September  30  amounts  to  $22,372.76 ;  furniture  and  fixtures  are  valued  at 
$2,450;  horses  and  wagons,  $735;  insurance  unexpired,  $260;  shipping  supplies  on  hand,  $93.25;  office 
supplies  on  hand,  $106.50;  real  estate,  $122.50;  Wamsutta  Mills  stock,  $1,150. 

The  note  of  the  firm  for  $5,000  is  a  demand  note  issued  September  26  and  bearing  interest  at  6% ; 
the  note  of  $1,000  held  by  the  firm  was  received  on  September  9. 

The  Real  Estate  owned  by  the  firm  is  a  building  at  74  Chestnut  St.,  which  cost  $12,000,  and  which 
is  occupied  by  a  tenant.  At  the  time  of  closing  the  books  on  August  31  the  value  of  the  property  was 
increased  to  $12,250;  on  that  date  rent  accrued  for  August  of  $100  was  charged  to  the  Real  Estate 
account;  September  2,  $200  rent  was  received  from  the  tenant  for  August  and  September,  which  was 
credited  to  Real  Estate,  leaving  the  present  balance  of  $12,150. 


70 


The  building  occupied  by  the  firm  for  business  purposes  is  rented  at  $300  per  month. 

The  ten  shares  of  Wamsutta  Mills  stock  were  bought  on  August  13  for  $105  per  share ;  the  book 
value  was  increased  August  31,  at  the  time  of  closing  the  books,  to  $1,150.  No  dividend  has  been  re- 
ceived on  the  stock. 

One  per  cent,  of  the  gross  sales  is  to  be  set  aside  as  a  reserve  for  bad  debts. 

By  the  terms  of  the  partnership  agreement  6%  interest  is  to  be  allowed  each  partner  on  his  cap- 
ital account.  Taylor  is  allowed  a  monthly  salary  of  $150;  Wood,  $200;  Johnson,  $225.  The  salary 
of  each  partner  for  September  has  been  credited  to  the  respective  drawing  accounts. 

An  analysis  of  the  Interest  account  shows  interest  accrued  on  notes  receivable  as  of  August  31, 
$12.75 ;  interest  accrued  on  notes  payable,  $166.67 ;  interest  paid  during  September,  $208.33 ;  interest 
received,  $19.37. 

The  following  are  required : 

a.  Adjusting  Entries. 

b.  Trading  and  Profit  and  Loss  Statement  for  September  (show  percentage). 

c.  Balance  Sheet  (account  form), 

d.  Closing  Entries, 

75.  E.  C.  Richardson,  Trial  Balance  taken  from  General  Ledger  December  31,  1914,  before  ad- 
justing entries  have  been  made  and  posted. 

Land   (cost) $3,000.00 

Buildings   (cost)    15,400.00 

Horses  and  wagons  (cost) ....". 2,950.00 

Cash    3,469.70 

Accounts  receivable   4,697.50 

Notes  receivable    1,150.00                         I 

Merchandise  on  hand  June  30,  1914  (cost) 3,674.95 

Accounts  payable   $4,627.70 

Notes  payable 1.000.00 

E.  C.  Richardson,  capital 20,600.00 

E.  C,  Richardson,  drawings 600.00 

Sales   '      434.50  20,221.85 

Purchases 11,261.75               234.15 

Freight  inward 326.30 

Selling  expenses    1 ,716.40 

Delivery  expenses 682.36 

General  administrative  expenses 976.84 

Insurance  prepaid   124.50 

Interest  charges 96.87 

Interest  earnings  129.67 

Reserve  for  depreciation  of  buildings 3,080.00 

Reserve  for  depreciation  of  horses  and  wagons. 590.00 

Reserve  for  loss  of  bad  debts 78.30 

$50,561.67        $50,561.67 
Merchandise  on  hand  December  31,  1914  (cost)  .  .  .' $2,892.60 

Make  the  proper  provision  for  depreciation  of  buildings.  Estimated  life  of  buildings,  twenty  years. 
Charge  General  Administrative  Expense. 

Make  the  proper  provision  for  depreciation  of  horses  and  wagons.  Estimated  life,  ten  years.  The 
charge  is  to  be  divided  equally  between  Fright  Inward  and  Delivery  Expenses. 

Mr.  Richardson  desires  to  set  up  a  further  reserve  for  losses  on  account  of  bad  debts  amounting 
to  one  per  cent,  of  the  net  sales  for  the  period. 

71 


Interest  accrued  to  date  on  interest  bearing  notes  payable,  $24.50. 

Portion  of  cost  of  insurance  policies  applicable  to  the  current  period,  $62.25.  Charge  General 
Administrative   Expense. 

There  are  office  supplies  on  hand  which  cost  $34.00.  When  acquired  these  supplies  were  charged 
to  General  Administrative  Expense. 

REQUIRED : 

a.  Adjusting  Entries. 

b.  Profit  and  Loss  Statement. 

c.  Balance  Sheet — current  assets  first. 

d.  The  estimated  life  of  the  building  is  twenty  years.  On  approximately  what  date  was  it  ac- 
quired ? 

e.  Compute: 

1.  The  turnover  for  the  period. 

2.  Rate  per  cent,  of  gross  profit  on  sales. 

3.  Rate  per  cent,  of  gross  profit  on  cost  of  sales. 

4.  Rate  per  cent,  of  net  profit  on  the  average  capital  for  the  period. 

COMMENTS: 

Mr.  Richardson  conducts  a  small  retail  business.  Apparently  he  neither  allows  cash  discounts  on 
sales  nor  takes  advantage  of  cash  discounts  offered  by  creditors ;  or,  if  such  items  do  occur,  they  have 
been  treated  as  direct  deductions  from  Sales  and  Purchases,  respectively. 

For  convenience  in  making  up  the  Profit  and  Loss  Statement  the  debit  and  credit  footings  of  the 
Purchases  and  Sales  accounts  are  shown  instead  of  the  balances  of  these  accounts.  The  Purchases 
account  has  been  charged  with  gross  purchases  and  credited  with  purchase  returns  and  allowances. 
The  Sales  account  has  been  credited  with  gross  sales  and  debited  with  sales  returns  and  allowances. 
This  information  should  be  considered  when  drawing  up  the  Profit  and  Loss  Statement. 

In  the  adjusting  entries,  when  making  debits  or  credits  to  expense  accounts  care  should  be  taken 
to  use  the  expense  accounts  already  on  the  books  so  far  as  is  possible.  In  this  case,  general  expense 
accounts  only  are  kept  in  the  general  ledger ;  consequently  only  these  accounts  should  be  used.  New 
expense  or  income  accounts  should  be  opened  only  when  adjusting  extraneous  items,  and  then  only 
when  the  necessary  accounts  are  not  already  on  the  books.  Of  course,  when  detailed  expense  accounts 
are  kept  in  the  general  ledger  they  should  be  used  in  making  the  adjusting  entries. 

The  horses  and  wagons  are  used  for  both  hauling  inward  and  hauling  outward.  Consequently  ex- 
penses for  repairs,  teamsters'  salaries,  boarding,  depreciation,  etc.,  should  be  divided  between  Hauling 
Inward  and  Delivery  Expense. 

76.     (From   Massachusetts  C.   P.  A 

The  trial  balance  of  the  A.  B.  Co.  on 

Cash $50,100 

Accounts  receivable,  gross 400,000 

Notes  receivable 30,000 

Merchandise  inventory,  1/1/11,  gross.  240,000 

Merchandise  purchases,  to  1/1/12 1,250,000 

Prepaid  interest  1/1/11 12,500 

Interest  paid  to  1/1/12 36,000 

Expenses  paid  to  1/1/12 156,000 

Reserve  for  Disc,  accts.  payable,  1/1/11  4,000 

Bad  debts,  charged  off  to  1/1/12 2,500 

Returned  sales  customers 100,000 

Salaries    20,000 

Taxes    5,000 

Plant 250,000 

Discounts  allowed  customers 51,900 


.  Examination.) 

January  1,  1912,  appears  as  follows: 


Reserve    for    Disc,    accts.    receivable, 

1/1/11 

Reserve    for    Disc.    Mdse.    inventory, 

1/1/11  

Accounts  payable  

Notes  payable 

Sales   

Purchase  discounts  collected  on  settle- 
ments with  creditors 

Reserve  for  bad  debts,  1/1/11 

Mdse.  returned  to  creditors  to  1/1/12. . 

Collected  on  accts.  charged  to  P.  &  L. 
in  1910  

Credit  insurance,  rec'd  on  1910  losses, . 

Profit  and  loss  1/1/11 

Capital  stock 


$2,608,000 


$12,000 

12,000 

90,000 

600,000 

1,500,000 

59,500 

3,000 

50,000 

500 
1,000 
55,000 
225,000 

$2,608,000 


72 


The  following  information  is  stated : 

Accounts  Payable,  January  1,  1911,  Gross,  $80,000. 

Accounts  Receivable,  January  1,  1911,  Gross,  $300,000. 

Notes  Payable,  January  1,  1911,  $500,000.     Interest  paid  at  5%  to  July  1,  1911. 

On  July  1,  1911,  $500,000  is  renewed  at  6%  for  1  year  and  $100,000  additional  is  borrowed  at  same 
rate  for  1  year. 

Inventory,  January  1,  1912,  $320,000,  Gross. 

Goods  bought  on  terms  of  5%  30  days. 

Goods  sold  on  terms  of  4%  30  days. 

Reserve  for  Bad  Debts,  January  1,  1912,  to  be  1%  on  Gross  Accounts  Receivable. 
Submit : 

a.  Working  Account  showing  Operating  Profit. 

b.  Profit  and  Loss  Statement. 

c.  Balance  Sheet. 

77.     (From  Illinois  C.  P.  A.  Examination.) 

Alexander,  Brown  and  Clark  entered  into  a  partnership  arrangement  on  January  1,  1914,  their  busi- 
ness being  the  operating  of  a  dry  goods  store  in  Galesburg,  Illinois.  At  December  31,  1914,  the  Trial 
Balance  of  the  partnership,  before  making  any  adjustments,  was  as  follows: 

Dr.  Cr. 

Alexander — capital  account   $50,000.00 

Brown — capital  account .- 30,000.00 

Clark— capital  account 20,000.00 

Inventories  of  merchandise,  January  1,  1914 $125,000.00 

Accounts  receivable — customers  75,000.00 

Accounts  receivable — employees 3,000.00 

Cash  in  bank 5,000.00 

Cash  on  hand 1,000.00 

Notes  payable    60,000.00 

Accounts  payable '. .  15,000.00 

Sales   500,000.00 

Purchases,  including  freight 323,000.00 

Salaries  and  store  expenses 125,000.00 

Bad  debts  written  off 2,500.00 

Interest  paid  on  notes  payable 6,000.00 

Salary  to  Mr.  Alexander' ' 2,500.00 

Salary  to  Mr.  Brown 4,000.00 

Salary  to  Mr.  Clark 3,000.00 

$675,000.00      $675,000.00 

Prepare  an  Income,  Profit  and  Loss  Account  for  the  year  1914  and  a  Balance  Sheet  as  at  December 
31,  1914;  also  prepare  an  account  for  each  partner,  showing  transactions  for  year,  after  giving  effect 
to  the  following  adjustments: 

Interest  at  6%  per  annum  charged  or  credited  to  partners.  Accept  the  amounts  in  Capital  Ac- 
counts as  being  Capital  at  January  1,  1914. 

Mr.  Alexander  owns  the  store  and  will  be  credited  in  monthly  instalments  on  first  of  each  month 
(being  in  advance)  with  $10,000.00  for  rent.     Interest  at  6%  per  annum  to  be  allowed  on  these  credits. 

Of  the  interest  paid  on  Notes  Payable,  $2,000  applies  to  period  subsequent  to  December  31,  1914. 

Reserve  for  Unpaid  Taxes,  $1,000.00  and  for  Unpaid  Wages,  $1,500.00. 

A  Reserve  of  $1,500.00  is  necessary  for  Bad  and  Doubtful  Accounts. 

The  Inventory  at  December  31,  1914,  is  valued  at  $150,000.00. 

Of  the  profits,  if  any,  after  giving  effect  to  these  adjustments,  credit  10%  to  "Bonuses  to  Depart- 
ment Managers  and  Salesmen." 

The  profits  or  losses  are  divisible  in  the  following  proportions : 

Mr.  Alexander,  40%.         Mr.  Brown.  33  1/3%.         Mr.    Clark,   26  2/3%. 

73 


78.     (From  Illinois  C.  P.  A.  Examination.) 

Prepare  a  Trading  and  Profit  and  Loss  Account  and  Balance  Sheet  from  the  following  Trial  Balance 
and  data  for  the  year  ended  December  31,  1909: 

The  stock  of  stores  and  materials  at  the  end  of  the  year  December  31,  1909,  was  $8,500.00.  The 
rent  at  the  rate  of  $2,500.00  was  paid  up  to  September  30th.  Bad  debts  amounting  to  $850.00  have  to 
be  written  off.  A  provision  of  $1,250.00  has  to  be  made  to  meet  possible  bad  debts.  Depreciation  at  the 
rate  of  five  per  cent,  per  annum  on  the  plant  at  January  1,  1909,  has  to  be  written  off.  The  wages  are 
paid  up  to  December  27th;  the  wages  from  that  date  to  December  31st  amount  to  $175.00.  Interest  at 
five  per  cent,  per  annum  has  to  be  passed  on  the  amount  of  the  partners'  capital  accounts  at  January  1, 
1909.  (No  interest  on  partners'  current  accounts.)  Profits  to  be  divided  equally  between  the  partners. 
The  necessary  entries  for  division  of  profits  and  interest,  etc.,  to  be  passed  through  the  partners'  cur- 
rent accounts.     It  is  assumed  that  no  further  entries  are  required  to  be  made  to  complete  the  accounts. 

Johnson  &  White,  Trial  Balance,  December  31,  1909. 

Investments $2,410.00 

Accounts  payable $19,125.00 

Stores  and  materials,  January  1,  1909 2,120.00 

Johnson's  capital 29,600.00 

White's  capital 15,300.00 

Purchases 24,225.00 

Johnson's  current  account 2,310.(X) 

White's  current  account 3,910.00 

Accounts  receivable   13,265.00 

Wages 27,825.00 

Rent    1,875.00 

Dividends  on  investments 115.00 

Plant,  January  1,  1909. 44,100.00 

Bills  payable  .' ' 4,975.00 

Bank  975.00 

Office  expenses  and  salaries 2,1(X).00 

Instalments  received  on  account  of  work  in  progress 14,355.00 

Taxes    .' 40.00 

Bills  receivable 3,670.00 

Cash  in  office 50.00 

Law  and  accountancy  charges 255.00 

Repairs 330.00 

Work  in  progress,  December  31,  1909 25,905.00 

Bank  charges 90.00 

Sales 70,035.00 


$154,480.00   $154,480.00 


74 


79.  (From  New  York  C.  P.  A.  Examination.) 

The  following  is  the  trial  balance  of  Bailey  &  Co.  as  taken  from  their  ledger  December  30,  1905. 

Cash    $3,112.00 

Bills  receivable 14,900.00 

Accounts  receivable 22,750.00 

Bills  payable $2,006.00 

Accounts  payable 9.121.00 

Loans  at  6  per  cent 5,000.00 

Warehouse  receipts 8,351.00 

Merchandise  inventory 28,900.00 

Store  property   20,000.00 

Mortgage  on  store  property  at  5  per  cent .  10,000.00 

Unimproved  real  estate 6,000.00 

Store  fixtures 5,000.00 

Depreciation  on  store  fixtures  (1904) 5(X).00 

Horses  and  wagons 2,500.00 

Capital  stock,  750  shares  at  $100 \...  75,000.00 

Profit  and  loss,  surplus 2,573.00 

Purchases    132,251.00 

Sales   152,439.00 

Discounts   .  103.00 

Rents,  hall  over  store 250.00 

Taxes 156.00 

Interest   800.00 

Heat  and  light 375.00 

Salesmen  and  wages  of  employees 4,912.00 

Officers'  salaries 4,000.00 

Miscellaneous  expenses  and  losses 2,985.00 

$256,992.00      $256,992.00 
Merchandise  inventory  Dec.  30,  1905 $30,254.00 

Prepare  a  trading  and  profit  and  loss  account  for  the  fiscal  year  1905  and  a  balance  sheet  as  at  the 
close  thereof.  Reserve  1  per  cent,  of  the  open  accounts  receivable  to  cover  bad  debts,  a  further  10  per 
cent,  from  office  furniture  and  20  per  cent,  from  horses  and  wagons  to  cover  depreciation. 

80.  (From  Massachusetts  C.  P.  A.  Examination.) 

Y  &  Z  Company,  Trial  Balance,  July  1,  1910. 

Cash $4,005.07  ^ 

Accounts  receivable 250,317.02 

Real  estate    16,520.00 

Mdse.  inventory  January  1,  1910 210,319.07 

Discounts  allowed  customers 35,318.72 

Bad  debts  charged  off 4,414.84 

Mdse.  purchased  Jan.  1,  1910,  to  July  1,  1910 738,898.43 

Expenses    47,397.80 

Notes  receivable    1,436.11 

Machinery   3,780.00 

Sales $916,389.04 

A  ccounts  payable,  merchandise 175,1 19.28 

Notes  payable,  loans 42,500.00 

Discounts  received  on  mdse.  settlements 29,320.16 

Capital    125,000.00 

Surplus 24,078.58 


$1,312,407.06   $1,312,407.06 
75 


You  are  asked  by  a  creditor  to  examine  the  books  of  the  Y  &  Z  Company  and  present  a  Balance 
Sheet  as  of  July  1,  1910,  together  with  a  Trading  and  Profit  and  Loss  Account,  showing  the  results  of 
the  business  for  the  preceding  six  months.  On  January  1,  1910,  the  merchandise  inventory  was  $210,- 
319.07,  and  on  July  1,  1910,  it  was  $110,318.67,  You  find  these  amounts  in  accordance  with  the  stock 
sheets  turned  over  to  the  bookkeeper  by  the  stock  clerk.  On  January  1,  1910,  the  Accounts  Receivable 
were  $216,895.98,  and  on  July  1,  1910,  they  were  $250,317.02,  and  on  Jan.  1,  1910,  the  Merchandise  Ac- 
counts Payable  were  $22,524.05,  and  on  July  1,  1910,  they  were  $175,119.28;  you  find  that  the  totals  of 
.the  Customers'  and  Creditors'  Accounts  on  the  Sales  and  Purchase  Ledgers  on  these  dates  are  in 
agreement  with  the  Controlling  accounts. 

Prepare  Balance  Sheet  as  of  July  1,  1910,  and  Trading  and  Profit  and  Loss  Account,  which  in  your 
opinion  will  correctly  represent  the  condition  of  this  company,  and  which  gives  the  Creditor  a  true 
statement  of  its  earning  capacity  for  this  period. 

81.     (From  New  York  C.  P.  A.  Examination.) 

A,  the  senior  partner  of  a  firm,  dies  May  9,  at  the  close  of  which  day  the  trial  balance  of  the  co- 
partnership ledger  shows  the  following  items : 

Cash    $3,794.00 

Fixed  assets   21,036.00 

Trade  debtors 92,766.00 

Trade  creditors $93,206.00 

Inventory,  January  1 12,005.00 

Purchases    14,160.00 

Sales   19,658.00 

Expenses    5,213.00 

Capital,  A 20,000.00 

Capital,  B  10,000.00 

Capital,  C 5,000.00 

Personal,  A    2,310.00 

Personal,  B 750.00 

Personal,  C  *         450.00 


$150,174.00      $150,174.00 

The  inventory  of  merchandise  stock  May  9  is  computed  at  $15,200,  the  unexpired  insurance  at  149, 
and  accrued  expenses  at  $207.  The  division  of  profits  between  partners  is  as  follows :  A,  57  per  cent. ; 
B,  28  per  cent. ;  C,  15  per  cent.  No  interest  is  credited  on  capital,  but  interest  is  credited  on  A,  per- 
sonal $115,  and  charged  to  B,  personal  $6.25,  and  to  C,  personal  $3.75. 

The  partnership  agreement  provides  in  case  of  A's  death  for  the  sale  of  A's  interest  to  B  and  C  on 
the  execution  of  a  bond  by  them  in  favor  of  A's  estate,  payable  in  five  yearly  instalments,  and  stipulates 
that  the  assets  are  to  be  taken  at  book  value,  excepting  one-half  per  cent,  reserve  for  bad  debts,  in  com- 
pliance with  which  provision  a  reserve  of  $500  is  made. 

A  new  firm  of  B,  C  and  D  is  formed,  in  which  D  invests  $5,000  cash  for  a  one-fourth  interest  in  the 
business.  B  withdraws  all  in  excess  of  $10,000  and  C  pays  a  sum  sufficient  to  bring  his  capital  up 
up  to  $5,000.  The  future  profits  are  to  be  shared  in  the  following  stated  proportions,  viz. :  B  one-half, 
C  one-fourth,  and  D  one-fourth.  The  new  firm  executes  a  purchase  mortgage  with  bond  as  provided  in 
favor  of  A's  estate  for  $20,000,  and  pays  over  the  balance  of  his  interest  in  cash. 

Prepare  the  necessary  accounts  to  give  expression  to  the  foregoing  liquidation  of  the  firm  of  A,  B 
and  C,  and  a  balance  sheet  of  the  firm  of  B,  C  and  D,  as  at  the  beginning  of  their  enterprise. 


76 


82.     (From  Massachusetts  C.  P.  A.  Examination.) 

The  following  is  a  comparative  balance  sheet  at  December  31,  1910,  and  at  December  31,  1911. 
presented  to  the  board  of  directors  of  the  Western  Company  at  its  meeting  January  5,  1912 : 

Dec.  31,  Dec.  31, 

Assets  1910  1911 

Land  $20,000.00  $25,000.00 

Buildings  45,000.00  45,000.00 

Machinery  and  tools 86,000.00  89,000.00 

Horses,  wagons  and  harness 10,500.00  10,500.00 

Patents  . . .- 6,000.00  6,000.00 

Good  will 25,000.00  25,000.00 

Cash    28,300.00  10,300.00 

Accounts  receivable  , 29,600.00  26,550.00 

Investments  and  bonds 15,000.00 

Inventory— Goods  in  process 10,800.00  14,690.00 

Inventory— Material  and  supplies 6,750.00  10,300.00 

Agency  investments  3,680.00 

$267,950.00  $281,020.00 
Liabilities 

Bonds  and  mortgage  payable $20,000.00 

Notes  payable $35,000.00  2,000.00 

Accounts  payable 16,400.00  19,350.00 

Reserves  for  depreciation 2,500.00  6,750.00 

Discount  on  bonds 1,000.00 

Capital  stock: 

Preferred 150,000.00  150,000.00 

Common   50,000.00  50,000.00 

Surplus 14,050.00  31,920.00 


$267,950.00      $281,020.00 

The  land  increase  was  due  to  appraisal  based  on  rise  of  values  of  factory  sites  in  the  immediate 
vicinity. 

Together  with  the  above  balance  sheet  there  was  submitted  to  the  board  a  statement  of  income  and 
profit  and  loss  showing  the  profits  of  the  year  to  have  been  $22,120. 

The  directors  state  to  the  auditor  that  in  view  of  the  decrease  of  cash  and  accounts  receivable, 
of  the  absence  of  dividends,  and  of  the  increase  of  capital  liabilities,  they  are  unable  to  ascertain  what 
has  become  of  the  profits  of  the  year. 

Prepare  a  statement  to  show  clearly  how  the  Western  Company  has  applied  such  resources  of  the 
year  1910  as  have  been  lost  in  1911,  and  the  resources  and  profits  of  the  year  1911. 


77 


PART  V 
SURPLUS  AND  RESERVE  ACCOUNTS 

83.  (From  Ohio  C.   P.  A.   Examination.) 

a.  State  the  theory  of  depreciation. 

b.  Explain  several  methods  of  computing  depreciation. 

c.  How  would  you  show  a  reserve  for  depreciation  on  the  balance  sheet? 

84.  (From  Wisconsin  C.  P.  A.  Examination.) 

From  the  data  given  below,  explain  clearly  and  show  figures  illustrating  three  different  methods 
of  arriving  at  the  amount  to  charge  annually  for  the  depreciation  of  the  following  items : 

Cost     Estimated  Life  Scrap  Value 

Buildings   $50,(X)0         50  years  $1,(X)0 

Machinery 20,000        20  years  2,000 

Tools 5,000  5  years  100 

Patterns   10,000  3  years  100 

85.  The  North  Manufacturing  Co.  has  an  account  with  Reserve  for  Depreciation  of  Office  Equip- 
ment, which  is  credited  at  the  time  of  closing  the  books  with  the  estimated  depreciation  of  the  office 
equipment.  This  account  now  shows  a  credit  balance  of  $632.80.  June  21,  the  company  purchased 
a  new  safe  costing  $600  and  was  allowed  $125  for  the  old  one  taken  in  exchange.  The  old  safe  cost 
$400.     Make  necessary  entries. 

86.  (From   Examination  for  Admittance   to   the   American   Institute  of  Accountants.) 

A  machine  costing  $81. (X)  is  estimated  to  have  a  life  of  four  years,  with  a  residual  value  of  $16.00. 
Prepare  a  statement  showing  the  annual  charge  for  depreciation  according  to  each  of  the  following 
methods : 

a.  Straight  line. 

b.  Constant  percentage  of  diminishing  value. 

c.  Annuity  method. 

(For  convenience  in  arithmetical  calculation  assume  the  rate  of  interest  to  be  10  per  cent.) 
Discuss  the  significance  of  each  of  the  methods. 

87.  (From  Massachusetts  C.   P.  A.   Examination.) 

A  corporation  has  been  accustomed  to  charge  the  purchase  of  machinery  to  the  Machinery  Account 
at  cost,  and  each  year  to  charge  the  Manufacturing  account  and  to  credit  a  Reserve  for  Depreciation 
account  with  an  amount  which  will  offset  the  cost  of  the  machinery  by  the  time  it  is  estimated  that 
it  will  be  advisable  to  scrap  the  machines.  During  the  period  that  you  have  been  employed  to  audit  the 
account,  you  find  that  the  corporation  has  sold  two  machines  for  $5(X)  each,  and  this  amount  has  been 
credited  to  the  Machinery  account.  One  of  them  cost  $1,(XX),  and  the  amount  reserved  for  depreciation 
on  this  machine  is  $600.     The  other  cost  $1,500,  and  the  amount  reserved  for  depreciation  is  $850. 

Make  the  adjusting  entries  to  correct  the  books. 

88.  An  account  with  Reserve  for  Depreciation  of  Delivery  Equipment  showed  on  December 
31,  1916,  a  balance  of  $940.80.  The  Delivery  Equipment  account  of  the  same  date  showed  a  balance  of 
$13,968.40. 

In  August,  1916,  a  horse  died  which  cost  $3(X),  no  entry  being  made  at  the  time.  Three  years' 
depreciation  had  already  been  provided  for  at  the  time  of  the  horse's  death  at  the  rate  of  10%  per 
annum,  leased  on  cost. 

78 


In  October,  1916,  a  horse  which  cost  $275  was  sold  for  $175,  the  difference  between  cost  and 
selling  price  having  been  charged  to  the  Reserve  account.  This  horse  was  bought  at  the  same  time  the 
other,one  was  and  the  same  depreciation  has  been  provided  for. 

Make  necessary  adjustments. 

89.  (From    Examination    for   Admittance   to   the   American    Institute   of   Accountants.) 

A  machine  costing  $10,000  was  estimated  to  have  a  life  of  ten  years,  with  a -residual  value  of  $1,000. 
At  the  close  of  each  year  a  charge  of  $900  was  made  and  a  similar  amount  credited  to  "Reserve  for 
Depreciation."  Just  prior  to  closing  the  books  at  the  end  of  the  tenth  year  the  machine  was  discarded 
and  sold,  bringing  $2,000,  and  a  similar  machine  was  bought  costing  $15,000.  *  Give  the  journal  entries 
that  you  would  make  to  close  the  books  at  the  end  of  the  tenth  year  in  order  to  cover  these  transactions 
and  to  make  necessary  adjustments.     Interest  is  not  to  be  calculated. 

90.  The  Norfolk  Machine  Company  has  followed  the  policy  of  crediting  depreciation  on  fixed 
assets  directly  to  the  ledger  accounts  kept  with  such  assets,  arbitrary  amounts  being  written  off  to 
cover  depreciation  at  the  close  of  each  fiscal  period.  At  the  time  of  closing  the  books  on  June  30, 
1917,  on  the  advice  of  an  accountant,  it  is  decided  to  abandon  such  an  unscientific  policy  and  the  ac- 
countant is  authorized  to  outline  a  series  of  entries  by  which  proper  reserve  accounts  may  be  opened 
covering  the  entire  period  during  which  the  assets  have  been  in  use. 

To  enable  the  accountant  to  do  so,  the  following  data  is  obtained  regarding  the  accounts: 

Buildings : 

Cost ' $90,000.00 

Depreciation  written  off  to  12/31/16 16,700.00 

Estimated  life  from  12/31/16 20  years 

Machinery  and  Equipment: 

Cost 50.000.00 

Cost  of  replacements 5,000.00 

Depreciation  written  off  to  12/31/16 14,375.00 

Estimated  life  from  12/31/16 8  years 

Power  Plant: 

Cost 8,000.00 

Cost  of  replacements 1,500.00 

Depreciation  written  off  to  12/31/16 4,000.00 

Estimated  life  from  12/31/16 4  years 

Office  Equipment :  v. 

Cost $6,500.00 

Cost  of  replacements 700.00 

Depreciation  written  off  to  12/31/16 1,635.00 

Estimated  life  from  12/31/16 8  years 

Horses,  Wagons  and  Harness : 

Cost 14,500.00 

Cost  of  replacements 1,200.00 

Depreciation  written  off  to  12/31/16 7,340.00 

Estimated  life  from  12/31/16 6  years 

Prepare  journal  entries  with  complete  explanations  by  which  the  new  policy  may  be  put  into 
effect,  provision  being  made  at  the  same  time  for  the  depreciation  applicable  to  the  current  six  months' 
period. 

79 


91.  The  Bay  State  Press  has  an  account  with  Fixtures  showing  a  total  cost  of  $46,880  which  were 
bought  as  follows : 

1905    $5,115        1909   $1,005 

1906   3,002        1910   4,505 

1907   2,150        1911    6,115 

1908   17,810        1912   7,178 

No  depreciation  has  ever  been  provided,  a  condition  which  it  is  now  desired  to  correct.  The  esti- 
mated life  is  10  years  from  the  date  of  purchase. 

Make  entry  for  setting  up  a  reserve  account  covering  depreciation  for  the  entire  period  during 
which  the  fixtures  have  been  used,  including  depreciation  for  the  current  year  ending  December  31, 
1912. 

92.  The  Digesto  Food  Company  manufactures  a  brand  of  breakfast  food  according  to  a  secret 
process.  Their  engineers  design  a  special  machine  for  its  manufacture,  ten  machines  of  this  design 
being  made  by  the  Breckworth  Machine  Company. 

The  cost  of  each  machine  is  $3,600 ;  the  estimated  life  is  ten  years ;  the  scrap  value  $100. 

As  an  accountant,  you  are  asked  to  work  out  a  method  for  reckoning  depreciation  on  the  machines, 
the  depreciation  to  be  included  in  the  cost  to  produce  the  food.  Your  attention  is  called  to  the  fact 
that  the  business  has  been  quite  profitable  due  largely  to  the  extensive  advertising  done  by  the  com- 
pany. Their  success,  however,  has  attracted  capital  in  large  quantities  to  this  field  and  new  com- 
panies are  constantly  being  organized  for  the  manufacture  of  a  variety  of  competing  foods,  with  the 
result  that  the  ability  of  the  company  to  maintain  their  present  sales  and  profits  is  rather  uncertain. 

Prepare  your  report  covering  the  following  points: 

a.  Method  of  reckoning  depreciation. 

b.  Method  of  bringing  it  on  the  books. 

c.  Treatment  of  repairs. 

d.  Design  a  ledger  card  for  a  perpetual  inventory  of  machinery  units  owned  by  the  company, 
showing  all  facts  about  the  purchase ;  the  depreciation  written  off  from  time  to  time  is  also  to  be 
recorded  on  the  cards. 

93.  December  31,  1912,  at  the  time  of  closing  the  books,  the  Henry  Hudson  Company  set  aside 
1^%  of  Accounts  Receivable  as  a  reserve  for  bad  debts.  The  Accounts  Receivable  on  that  date 
showed  a  balance  of  $62,747.93. 

June  30,  1913,  the  accounts  of  R.  W.  Rollins  &  Co.  for  $137.20  and  of  J.  C.  Cutter  for  $42.25  are 
written  off,  as  repeated  attempts  have  been  made  to  collect  them. 

September  1,  1913,  a  final  dividend  of  20%  from  trustees  in  bankruptcy  for  Thomas  Knight  on 
a  claim  of  $638.20  was  received.     Previous  to  this,  dividends  of  30%  and  20%  had  been  received. 

July  2,  1914,  J.  C.  Cutter  paid  us  in  full  the  amount  written  off  on  June  30,  1913. 

Make  necessary  entries. 

94.  French  &  Dysart,  Inc.,  are  engaged  in  the  manufacture  of  lathes,  at  the  time  of  closing  the 
books  June  30,  1915,  the  following  facts  are  discovered  by  the  accountant: 

March  1,  the  Essex  Machine  Company  ordered  the  delivery  of  two  lathes,  which  had  been  manu- 
factured for  them  and  had  been  holding  for  shipping  instructions  since  September,  1914.  The  lathes 
had  been  charged  to  the  Essex  Machine  Company  on  September  21,  1914,  but  by  an  oversight  were 
included  in  the  inventory  taken  December  31.     One  machine  was  billed  at  $962.50  and  the  other  at  $750. 

The  inventory  taken  December  31  was  also  found  to  contain  the  following  clerical  errors : 
Finished  stock,  $3,100  too  much. 
Raw  materials,  $1,000  too  little. 

L.  P.  Fuller,  a  customer  of  the  company,  failed  and  his  affairs  were  settled  in  the  bankruptcy 
court.  A  final  dividend  was  received  March  1,  1914,  leaving  an  unpaid  balance  of  $610  which  was 
charged  off  to  Profit  and  Loss.  Fuller  began  business  anew  and  desiring  to  make  settlement  in  full 
with  all  creditors  as  he  is  able  to  do  so,  sends  the  company  his  check  for  $300  on  account  on  June  30, 
1915.     What  entry  should  the  bookkeeper  make? 

80 


If  the  $610  had  been  charged  to  a  Reserve  for  Doubtful  Account,  what  entry  would  you  advise  at 
the  time  of  recovering  the  $300? 

95.  An  accountant  is  engaged  by  a  certain  concern  to  draw  up  financial  statements  and  to  close 
the  books  as  of  December  31,  1916.  He  finds  that  no  provision  for  accrued  or  prepaid  items  was 
made  when  the  books  were  closed  December  31,  1915,  and  he  also  locates  certain  errors  as  indicated 
in  the  following: 

Accrued  wages  and  salaries — Dec.  31,   1915 — $1,640. 

Dec.  31,  1916— $2,000. 
Insurance  paid  in  advance — Dec.  31,  1915 — $360. 

Dec.  31,  1916— $180.  '     ' 

Accrued  interest  on  mortgage — Dec.  31,  1915 — $1,200.  » 

Dec.  31,  1916— $1,200. 

Goods  received  prior  to  Dec.  31,  1915,  and  included  in  the  inventory  of  that  date  but  not  entered 
on  the  books  until  Jan.,  1916— $8,000. 

Error  in  taking  inventory  Dec.  31,  1915 — $1,500  too  little. 

Depreciation  on  real  estate — estimated — for  1915,  $6,500 — for  1916,  $7,000. 

Make  the  necessary  adjusting  entries. 

96.  A  firm  closed  its  books  on  December  31,  1913 ;  on  January  15,  an  accountant  is  called  in  to 
make  an  audit  of  the  accounts  for  the  year  and  check  up  the  financial  statements : 

The  accountant  discovers  that  the  following  accrued  and  prepaid  items  were  ignored  by  the  book- 
keeper at  the  time  of  closing  the  books,  both  on  December  31,  1913,  and  on  June  30,  1913,  the  date  of 
the  preceeding  closing: 

June  30, '13       Dec.  31, '13 

Error  in  inventory  (too  much) $1,850.00 

Interest  prepaid  on  notes  payable 375.00  $150.00 

Wages  accrued    1,957.00  3,984.00 

Insurance  premiums  prepaid 290.00  680.00 

Interest  accrued  on  bonds 500.00  500.00 

Taxes  accrued  600.00 

Taxes  prepaid 500.00 

97.  (From  Illinois  C.  P.  A.  Examination.) 

In  taking  up  the  audit  of  the  accounts  of  a  company  for  the  year  ending  December  31,  1912,  you 
find  that  the  adjustments  made  at  the  previous  audit  for  the  year  1911  have  not  been  t^ken  on  the 
books,  and  that,  therefore,  the  books  are  not  in  agreement  with  the  audited  accounts  as  of  that  date. 
Assuming  the  following  were  the  adjustments  referred  to,  what,  if  any,  disposition  would  you  make  of 
the  items  at  this  audit,  illustrating  your  answer  with  draft  journal  entries,  viz. : 

To  record : 

1.  Invoices  for  Merchandise  in  Transit  at  December  31,  1911,  not  on  books $5,000.00 

2.  Invoices  for  Merchandise  received  but  not  entered    10,000.00 

3.  Reserve  for  Bad  Debts   (said  debts  were  written  ofiF  in  1912) 2,000.00 

4.  Factory  Expense  Bills  for  1911  not  entered  until  January,  1912 750.00 

5.  Pay-Roll  accrued  at  December  31,  1911 6,000.00 

6.  Insurance  Premiums  paid  in  advance  at  December  31,  1911   500.00 

7.  Taxes  for  year  ending  December  31,   1911,   not  entered  until  May,  1912 1,000.00 

8.  Reserve   against   excess   valuation   of   Inventory,  December  31,   1911 10,000.00 

9.  Depreciation  not  taken  up  on  books  prior  to  January,  1911,  $5,000;  year  ending  De- 

cember 31,  1911,  $1,000 6,000.00 

10.  To  write  oflF  an  unlocated  difference  in  the  Accounts    Receivable    Controlling    Ac- 

count at  December,  1911,  which,  however,  was  located  and  canceled  in  1912 1,500.00 

81 


98.     (From  Massachusetts  C.   P.  A.   Examination.) 

The  books  of  the  X  Manufacturing  Company  were  audited  to  December  31,  1913,  and  in  making  up 
the  Balance  Sheet  and  Profit  and  Loss  Account  at  that  date  the  auditors  recommended  the  following  ad- 
justments : 

a.  Transferred  to  Profit  and  Loss  $4,231.07  which  had  been  charged  to  real  estate  and  buildings 
in  error. 

b.  Provided  for  depreciation  of  •  buildings,  etc.,  $7,200.00. 

c.  Adjusted  salaries  amounting  to  $1,400.00  due  for  1913  services  but  not  entered  on  the  books 
until  January,  1914. 

d.  Reduced   the   amount  of   Inventory   because  of  errors,  $12,000. 

The  same  auditors  were  again  called  in  to  audit  the  books  to  June  30,  1914,  and  found  that  the 
above  adjustments  had  not  been  entered  on  the  books.  They  also  found  that  during  the  half  year 
$1,000.00  had  been  charged  to  real  estate,  buildings,  etc.,  instead  of  to  expense;  that  no  provision  had 
been  made  for  depreciation  for  the  period  amounting  to  $3,600.00  and  that  the  inventory  had  been 
footed  $10,000.00  too  much.  Also  that  the  unexpired  insurance  amounting  to  $750.00  more  than  was 
entered  on  the  books.  The  following  are  condensed  trial  balances  of  the  X  Manufacturing  Company 
books  as  the  auditor  found  them  as  of  December  31,  1913,  and  June  30,  1914: 

December  31,  1913  June  30,  1914 

Real  estate,  buildings,  etc $102,840.26         $115,226.80         

Capital  stock $200,000.00         $200,000.00 

Debentures    100,000.00         100,000.00 

Cash 14,672.14        22,143.21         

Accounts  payable 9,431.17         11,698.21 

Accounts  receivable    22,436.10         28,250.40         

Loans   10,000.00         5,000.00 

Stocks  and  bonds 17,502.50         19,150.00         

Inventory    246,153.42         288,360.14         

Unexpired  insurance 1,471.23         742.26         

Surplus    , 85,644.48        85,644.48 

Profit  and  Loss,  1914 • 71,530.12 


$405,075.65    $405,075.65    $473,872.81     $473,872.81 
From  the  foregoing  facts  prepare : 

1.  A  correct  Balance  Sheet,  June  30,  1914. 

2.  State  the  adjusted  amount  of  profits  for  the  half  year  to  June  30,  1914. 

3.  Prepare    statement   reconciling   the    Balance  Sheet  figures  with  the  original  Trial  Balance  of 
June  30,  1914. 


82 


PART  VI 
CONSIGNMENTS,  BRANCHES  AND  SELLING  AGENCIES 

99.  (From  Missouri   C.   P.  A.   Examination.) 

What  is  the  proper  method  of  treating  Consignments  on  the  books  of : 

1.  Consignor 

2.  Consignee 

3.  On  their  respective  balance  sheets. 

100.  A  ships  to  B  on  consignment,  under  date  of  April  4,  merchandise  to  the  value  of  $1,500,  pay- 
ing $15  cartage  and  $6  insurance. 

B  receives  the  consignment  April  20,  paying  freight  $70  and  cartage  $12.  He  subsequently  disposes 
of  the  merchandise  by  sales  as  follows :  April  30,  $400 ;  May  30,  $800 ;  June  30,  $600,  on  which  latter 
he  pays  storage  charges  $30.  He  charges  commissions  on  sales  5%,  credits  net  interest  at  6%  and 
transmits  account  sales  with  remittance  of  net  proceeds  to  A.  who  receives  them  July  10. 

Prepare  shipment  accovmt  as  appearing  on  A's  ledger  and  consignment  account  as  appearing 
on  B's  ledger. 

101.  (From    Illinois    C.    P.    A.    Examination.) 

Two  merchants,  C.  F.  Munton  and  W.  A.  Spencer,  agree  to  share  equally  in  a  joint  adventure  in 
trade  to  the  West  Indies. 

On  March  1st,  1907,  they  charter  a  small  vessel  and  purchase  and  ship  materials  which  cost  them 
$197.(X),  for  which  Munton  gives  his  check. 

This  cargo  they  consign  to  John  Smith,  their  agent  at  Havana,  which  he  disposes  of,  and  in  return 
ships  on  board  the  same  vessel  4,(XX)  cases  of  Commodity  A,  and  100  cases  of  Commodity  B ;  and  he 
draws  on  Munton  at  sight  for  $125.00,  this  being  the  amount  of  the  agent's  charges  and  disbursements  over 
and  above  the  net  proceeds  of  the  cargo  consigned  to  him.  Munton  accepts  and  pays  the  bill.  On  April  1st 
the  vessel  arrives,  whereupon  Munton  pays  sundry  charges  of  $337.50.  Spencer  pays  the  freight,  amounting 
to  $493.00.  On  April  4th  Munton  sells  1,000  cases  of  Commodity  A  to  Henry  Chamberlain  for  $239.58,  and 
collects  $150.(X)  and  on  April  10th  Spencer  collects  the  rest. 

About  this  time,  Mr.  Spencer  happens  to  have  occasion  for  1,400  cases  of  Commodity  A.  which  he 
takes  on  April  14th.  and  with  Munton's  consent  values  at  $291.66.  He  also  takes  10  cases  of  Commodity 
B,  valued  at  $47.50.  Munton  sells  the  other  1,600  cases  of  Commodity  A  on  April  20th  to  John  \\'alters  for 
$383.33,  and  a  month  after  accepts  $382.50  in  full  payment. 

Mr.  Munton  next  sells  on  April  25th  the  other  90  cases  of  Commodity  B  in  barter  for  30  cases  of 
Commodity   C.   which   he  and   Spencer   divide   equally  between  them. 

The  goods  being  thus  disposed  of,  Munton  presents  his  bill  of  charges,  which  comes  to  $22.66,  and 
desires  to  have  accounts  stated  between  Mr.  Spencer  and  him. 

You  are  required  to  give  the  Ledger  Accounts  of  the  joint  adventure  recording  the  foregoing  trans- 
actions as  follows : 

Joint  Adventure  Account, 
C.  F.  Munton, 
W.  A.  Spencer, 
Henry  Chamberlain, 
John  Walters. 

102.     (From    Illinois   C.   P.   A.    Examination.) 

A.  B.  &  Co.  agree  with  C.  D.  &  Co.  that  the  latter  shall  ship  on  consignment  to  Honolulu  on  joint 
account  20  cases  of  Commodity  "X,"  the  invoice  price  of  which  is  $2,100,  less  2j/2  per  cent.  A.  B.  & 
Co.  pay  the  packing  charges,  $25 ;  also  freight,  insurance  and  other  charges,  $90,  and  they  draw  on  their 
correspondents  in  Honolulu  in  advance  for  $1,600  at  90  days,  which  is  discounted  at  a  cost  of  $20.  and 
the  proceeds  handed  to  C.  D.  &  Co.  as  part  payment.  These  transactions  may  be  dated  March  1st,  1909. 
On  the  30th  of  November,  1909,  A.  B.  &  Co.  receive  the  account  sales  and  net  proceeds,  $418,  and  they 
then  pay  C.  D.  &  Co.  the  balance  due  to  them. 

83 


Prepare  a  Joint  Consignment  Account  charging  interest  on  the  amount  lying  out  at  5  per  cent,  per 
annum  for  eight  months,  closing  it  by  dividing  the  loss.  Also  an  account  to  be  rendered  by  A.  B.  &  Co. 
to  C.  D.  &  Co.  closed  by  payment  of  the  balance  and  prove  that  the  losses  borne  by  each  are  equal. 

103.     (From  Massachusetts  C.   P.  A.  Examination.) 

A  commission  house,  composed  of  three  partners,  is  selling  agent  for  sundry  consignors  whose  ac- 
counts are  unguaranteed.  The  rate  of  commission  is  3%  of  the  net  sales.  The  fiscal  terms  end  June  30, 
and  December  31.  The  partners'  capital  accounts  are  to  be  credited  with  interest  at  6%,  p.  an.,  and  with 
the  net  earnings  which  are  to  be  apportioned  as  follows : 

J.  Doe,  60% ;  R.  Roe,  30%  ;  J.  Smith,  10%.  No  interest  is  to  be  computed  on  J.  Doe's  drawing 
account;  that  account  is  to  be  credited  with  1%  of  the  net  sales.  Following  is  the  trial  balance,  Decem- 
ber 31,  1910: 

Cash  $16,800  Sundry  creditors  $100 

Advances  to  sundry  consignors,  Sundry  consignors'  sales  accounts 235,600 

account  of   sales    105,700  J.  Doe  Capital  acct. 

Accounts  receivable,  for  account  of  June  30,   1910)    100,000 

sundry    consignors    235,600  R.  Roe  capital  acct. 

J.  Doe  drawing  acct 5,800                 (June  30,  1910) 9,000 

Salaries    3,400  J.   Smith  capital  acct. 

Rents 700                (June  30,   1910)    4,000 

Traveling 600  Commissions     18,000 

Teaming    200  Interest  received  from  consignors, 

Miscellaneous  expenses 800                on  advances  account  of  sales 

(to  Dec.  31,  1910) 2,900 


$369,600  $369,600 

The  net  sales,  during  the  six  months,  were  $600,000.      Write,   in   proper    form,   a   statement   for   the 

six  months  ended  December  31,  1910,  showing  the  detail  of  gross  earnings;  expenses;  total  interest  cred- 
ited to  the  partners ;  net  earnings ;  and  the  distribution  of  the  latter.  Show  a  balance  sheet,  December 
31,  1910. 

104.     (From  Ohio  C.  P.  A.  Examination.) 

The  following  is  a  pre-closing  trial  balance  as  at  December  31,  1913,  prepared  from  the  ledger  of 
Messrs.  Joseph  &  Johnson,  commission  merchants : 

Debit  Credit 

A.  B.  Joseph — Capital  account $50,000.00 

C.  D.  Johnson — Capital  account 50,000.00 

Cash $293,719.52  281,388.10 

Customers  215,720.60  195,625.30 

Buckeye  Worsted  Mills— Consignment  sales 215,720.60  215,720.60 

Freight  and  cartage 18,652.70  10,362.60 

Commissions 21,572.06 

Discount  allowed ". 1,905.78 

Buckeye  Worsted  Mills— Current  account 50,000.00  62,982.41 

General  expenses 10,000.00 

Buckeye  Worsted  Mills— Advances 202,735.40  120,803.53 


Totals  $1,008,454.60   $1,008,454.60 

The  bookkeeper  is  seriously  ill,  and  the  firm  of  C.  P.  &  A.  (by  whom  you  are  employed  as  a  senior 
accountant)  have  been  requested  to  prepare  from  this  data — without  an  audit  of  the  books — a  balance 
sheet,  and  to  determine  what  the  profits  or  losses  for  the  year  have  been. 

Mr.  Johnson,  one  of  the  partners,  who  brought  this  trial  balance  to  the  office,  has  furnished  the 
following  additional  facts : 

The  firm  started  business  January  1,  1913,  with  a  cash  capital  of  $100,000,  of  which  each  partner 
contributed  one-half. 

84 


The  firm  does  business  under  a  contract  with  the  Buckeye  Worsted  Mills,  whereby  it  handles,  on 
consignment,  the  product  of  the  Buckeye  Mills  exclusively.  The  contract  provides  for  an  advance  to 
the  mill  of  70%  of  the  billed  value  upon  shipment  of  the  goods  from  the  mill.  All  sales  are  made  at  an 
advance  of  25%  over  the  mill  billing  price,  and  settlements  for  sales  are  made  with  the  mill  monthly, 
less  a  10%  commission,  less  freight  and  cartage  on  the  goods  sold,  and  less  the  advances  made  on  the 
goods  sold.     The  shipments  made  during  the  year  amounted — at  the  mill  billing  price  to  $289,622. 

Your  principal  also  furnishes  you  with  the  following  explanations  concerning  the  operation  of 
two  of  the  accounts  shown  on  the  trial  balance. 

Buckeye  Worsted  Mills — Consignment  Sales.  This  account  is  credited  with  sales  and  debited  with 
the  monthly  settlements. 

Fretght  and  Cartage.  The  debits  in  this  account  measure  the  freight  and  cartage  paid  on  ship- 
ments made  to  the  firm,  and  the  credits  measure  the  deductions  for  freight  and  cartage  made  in  the 
settlements  with  the  mill. 

You  are  asked  to  submit : 

a.  Ledger  accounts  exhibiting  in  summary  form  the  entries  for  the  year's  transactions,  each  entry 
in  the  several  ledger  accounts  cross-indexed  by  number  so  as  to  identify  the  same  with  the  contra 
debit  or  credit  in  another  ledger  account. 

b.  A  balance  sheet  as  at  December  31. 

c.  A  statement  of  the  profits  or  losses. 

d.  The   value   of   the   consigned   goods   unsold  at  mill  billing  price. 

105.  George  Bentley  &  Co.  place  you  in  charge  of  a  branch  store  with  goods  valued  at  $2,150  and 
cash  $75.  You  are  to  receive  a  salary  of  $40  per  month  and  10%  of  the  gross  profits.  During  the  year 
you  pay  store  expenses  of  $210.  The  goods  shipped  from  main  store  during  the  year  amounted  to 
$21,000  and  your  sales  cover  $24,000.  At  the  end  of  the  year  your  books  showed  accounts  receivable 
$400  and  merchandise  on  hand,  $2,000. 

Make  a  statement  showing  the  net  profit  of  the  branch.  It  is  decided  to  close  the  branch  at  the 
end  of  the  year.  Show  balance  of  cash  due  Bentley,  assuming  that  he  takes  over  the  Accounts  Re- 
ceivable and  Merchandise. 

106.  (From   Illinois   C.    P.   A.   Examination.) 

A  branch  office  business  was  started  the  first  of  the  year,  the  head  office  advancing  $5,000.00  cash. 
During  the  first  year  merchandise  was  shipped  to  Branch,  invoiced  at  $75,000.00. 

An  auditor  checking  up  the  business  at  the  close  of  the  year  finds  the  following: 

Merchandise    sales   were   $60,000.00,   with   selling  price  of  goods  20%  advance  on  invoice. 

Proper  vouchers  were  on  file  duly  receipted  for  following  payments : 

Rebates  and  allowances  on  damaged  goods $1,500.00 

Salaries  and  other  expenses 4,500.00 

Freights   2,500.00 

The  books  also  showed : 

Remittances  to  head  office $35,000.00 

Uncollected  accounts   15,000.00 

and  balance  of  the  sales  having  been  realized  in  cash,  less  rebates  and  allowances  as  noted. 

The  cash  on  hand  and  inventory  of  unsold  goods,  together  with  the  foregoing  records,  properly 
account  for  everything. 

Prepare  statement,  such  as  an  auditor  would  make  in  reporting  to  the  head  office,  balancing  the 
business  of  the  branch  house. 

85 


107.     (From  Massachusetts  C.   P.  A.   Examination.) 

The  condition  of  the  Atlantic  Co.  at  the  close  of  business,  December  31,  1913,  is  reported  by  them 
as  follows: 

Assets 

Real  estate    $150,000.00 

Machinery   200,000.00 

Cash 24.500.40 

Accounts  receivable   320,800.50 

Merchandise    375,480.70 

$1,070,781.60 

Liabilities 

Capital  stock $500,000.00 

Mortgage  on  real  estate 100,000.00 

Accounts  payable    67,000.00 

Notes  payable 100,000.00 

Surplus 200,000.00 

Profit  and  loss 103,781.60 


$1,070,781.60 


The  Company  has  a  branch  to  which  it  sells  its  goods  at  20%  over  inventory  prices  and  carries 
this  account  together  with  other  Branch  Assets  as  a  receivable. 

The  statement  of  the  branch  on  same  date  was : 

Assets 

Fixtures $6,205.79 

Cash    1,107.55 

Accounts  receivable #. 12,478.14 

Merchandise  at  price  billed  to  branch 5,241 .95 

$25,033.43 
Liabilities 
Atlantic  Company $25,033.43 

a.  What  was  the  inventoried  value  of  the  Branch  Merchandise? 

b.  Prepare  a  corrected  statement  of  the  Atlantic  Company. 

108.     (From   Massachusetts  C.   P.  A.  Examination.) 

A  branch  office  business  was  started  at  the  first  of  the  year,  the  head  office  advancing  $5,000  cash. 
During  the  first  year  merchandise  was  shipped  to  branch  invoiced  at  $75,000. 

An  auditor  checking  up  the  business  at  the  close  of  the  year  finds  the  following: 
Merchandise  sales  were  $60,(XX)  with  selling  price  of  goods  20%  advance  on  invoice  cost. 

Proper  vouchers  were  on  file  duly  receipted  for  following  payments : 

Rebates  and  allowances  on  damaged  goods $1,500 

Salaries  and  other  expenses 4,500 

Freights 2,500 

The  books  also  showed : 

Remittances  to  head  office $35,(XX) 

Uncollected  accounts   15,000 

The  balance  of  sales  having  been  realized  in  cash  less  rebates  and  allowances  as  noted. 
"The  cash  on  hand  and  inventory  of  unsold  goods  together  with  the  foregoing  records  properly 
account  for  everything. 

Prepare  statement  such  as  an  auditor  would  make  in  reporting  to  the  head  office,  balancing  the 
business  of  the  branch  house. 

86 


109.     (From  Massachusetts  C.   P.  A.  Examination.) 

A  manufacturing  concern  having  a  branch  in  another  town  presents  the  following  trial  balances  on 
January  1,  1912: 


Plant  

Material    and    supplies    (inventory 

Jan.  1,  1911) 

Purchases   

Labor    

General   expense    

Insurance — (1  yr.  to  Jan.  1,  1912). 
Accounts  receivable  (worth  95%)  , . 

Cash    

Dividends  paid 

Branch    


Main  Office 
$125,5(X)"      Capital  stock 


68,300 

245,800 

163,400 

24.900 

3.400 

84,600 

4,870 

20,000 

93,980 


Notes  payable    

Accounts  payable    

Net    sales    

Profit  and  loss  (Jan.  1,  1911) 


$250,000 

.   30.000 

42,630 

480,300 

31,820 


$834,750 


Branch 


Plant  

Material    and    supplies    (inventory 

Jan.  1,  1911) 

Purchases    

Labor   

Insurance — (1  yr.  to  Apr.  1,  1912). 

General  expense 

Accounts  receivable  (worth  1(X)%) 
Cash    


$35,200 

16,500 

62,450 

40,610 

1,260 

7,820 

24,600 

3,160 


Net  sales   . 
Main  office 


$834,750 


$97,620 
93,980 


$191,600 


$191,600 


Inventories  of  material  and  supplies  on  January  1,  1912,  were:  Main  office,  $45,300;  branch, 
$28,400. 

"  No  inventories  of  finished  goods,  as  same  were  sold  on  contract  for  daily  shipments,  and  are  all 
billed  up  on  closing. 

In  closing  on  January  1,  1911,  the  branch  charged  off  all  insurance. 

General   Expense  includes  salaries,  office   expense,  taxes,  etc. 

Selling  Expense  has  been  deducted  from  the  sales. 

Construct  one  working  account,  profit  and  loss  account  and  closing  balance  sheet  for  the  entire 
concern,  omitting  estimate  for  depreciation. 

110.      (From  Michigan  C.  P.  A.  Examination.) 

Compile  from  the  following  particulars,  supplied  by  the  branches,  an  account  with  each  branch 
in  the  books  at  the  head  office  of  the  Wholesale  Co.,  whose  year  ends  December  31,  1909,  bringing 
down  the  balances  as  they  should  appear  on  January  1,  1910. 


87 


The  branches  receive  all  their  goods  from  the  head  office  and  pay  in  all  of  their  cash  every  day. 
They  keep  their  own  sales  ledgers  and  do  their  own  collecting.  All  payments  for  wages  and  expenses 
at  the  branches  are  drawn  by  check  from  the  head  office  on  the  Imprest  system. 

A  B 

Merchandise  received  from  head  oflPice $10,360.00  $10,730.00 

Cash  received  from  customers '. .  .           11,450.00  10,340.00 

Allowance  to  customers 15.00  35.00 

Returns  from  customers  75.00  200.00 

One  year's  sales  to  Dec.  31,  1909 10,870.00  12,605.00 

Cash  sales  , 8,400.00  5,700.00 

Bad  debts 280.00  530.00 

Inventory  of  Mdse.  at  Jan.  1,  1909 2,300.00  2,500.00 

Debtors  at  January  1,  1909 8,270.00  5,730.00 

Debtors  at  December  31,  1909 7,320.00  8,760.00 

Inventory  at  December  31,  1909 3,750.00  4,320.00 

Rent  and  taxes  paid 600.00  730.00 

Wages  and  other  expenses 2,020.00  2,310.00 

111.     (From    Wisconsin    C.    P.    A.    Examination.) 

John  B.  Green  has  a  chain  of  five  retail  grocery  stores.  Goods  are  sold  to  consumers  for  cash; 
and  to  small  dealers  on  credit.  Additional  working  capital  is  required.  Three  of  Green's  friends 
agree  to  furnish  funds  providing  the  business  is  incorporated.  Such  books  as  exist  have  been  kept  by 
single  entry.  The  business  is  duly  incorporated  for  an  authorized  capital  of  $100,000,  par  value  of 
shares  $100  each.  It  is  agreed  that  Green  shall  turn  over  his  business  to  the  company  as  at  July  1, 
1914,  on  appraised  values  of  physical  properties ;  and  values  of  all  book  accounts  (assets  and  liabili- 
ties) as  they  shall  be  disclosed ;  and  Green's  net  worth  is  to  apply  on  his  stock  subscription  of  $25,000. 
In  addition.  Green  is  to  be  allowed  25%  of  the  net  worth  for  "Good  will."  Other  capital  stock  sub- 
scriptions are,  respectively.  A,  $30,000;  B,  $25,000;  C,  $20,000;  and  each  is  to  pay  immediately  in  cash 
a  proportionate  amount  on  subscriptions  which,  altogether,  shall  aggregate  50%  more  than  the  value 
of  capital  stock  issued  to  Green. 

9 

The  Appraisal  Company  reports  as  follows : 
Real  Estate: 

Store  No.  1 $4,000.00 

Store  No.  2 , 5,000.00 

Reproductive     Sound 
Buildings :  Values        Values 

Store  No.  1 $3,000.00    $2,000.00 

Store  No.  2 7,500.00      5,000.00 

Furniture  and  Fixtures: 

Stores   10,000.00  7,500.00 

General  Office 1,000.00  500.00 

Stock  Room 1,000.00  500.00 

Automobiles   (2)    5,000.00      3,500.00 

Inventories  (Merchandise)  : 

In  Store  Room 14,000.00 

In  Storage  (Butter  and  Eggs) 5,000.00 

In  Stores  11,000.00 

No.  1  $2,300.00 

No.  2 1,950.00 

No.  3 3,135.00 

No.  4 2,365.00 

No.  5 1,250.00 

88 


The  book  accounts  disclosed  are  as  follows : 

Cash  at  Bank $1,500.00 

Cash— General  Office  Petty  Cash) 100.00 

Cash— Stores 500.00 

No.  1 $140.00 

No.  2 75.00 

No.  3 160.00 

No.  4 60.00 

No.  5 65.00 

Accounts  Receivable — Dealers $2,600.00 

Trade  Creditors'  Accounts 22,280.00 

Accrued  Wages  and  Salaries 795.00 

Accrued  Taxes 100.00 

Unexpired  Insurance    50.00 

Mortgage  on  Real  Estate  and  Buildings — dated  July  1,  1913;  principal  payable  in  5  years; 

interest  at  6%  per  annum,  payable  semi-annually   7,500.00 

Notes  Payable  (Bank)  : 

Due  3  months  from  May  1,  1914  (6%) 10,000.00 

Due  3  months  from  June  1,  1914  (6%) 5,000.00 

Interest  falling  due  on  mortgage  loan  has  not  been  paid.    Interest  on  the  $10,000  note  is  payable  at 
maturity.    The  $5,000  note  was  discounted. 

The  following  additional  facts  are  shown  on  the  books  and  records  of  the  John  B.  Green  Company 
at  the  close  of  the  first  month's  business : 

Merchandise  Purchases  (of  which  $750  was  returned)  $35,000.00 

Stores'  Sales  as  per  Cash  Register  Totals : 

Store  No.  1  $6,000.00 

Store  No.  2 3,500.00 

Store  No.  3 8,000.00 

Store  No.  4 5,000.00 

Store  No.  5  2,500.00 

Sales  to  Dealers 5,000.00 

Issues  from  General  Stock  (at  cost)  : 

Store  No.  1  $5,585.00 

Store  No.  2 2,850.00 

Store  No.  3 6,470.00 

Store  No.  4 4,210.00 

Store  No.  5 2,475.00 

Cost  of  Goods  Shipped  to  Dealers 4,545.00 

Heat,  Light, 

Expenses  of  Stores:                                                                              Clerks'  Cleaning, 

Wages  Rents  Ice,  etc. 

Store  No.  1  $200.00  $65.00  $25.00   $290.00 

Store  No.  2 135.00  25.00  20.00    180.00 

Store  No.  3  235.00  75.00  35.00    345.00 

Store  No.  4 200.00  150.00  35.00    385.00 

Store  No.  5  135.00  100.00  35.00    270.00 

89 


Management  and  Office  Salaries $385.00 

Store  Room  and  Delivery  Wages .  265.00 

Rent  of  Office  and  Store  Room 35.00 

Stationery  and  Office  Supplies 40.00 

Postage 10.00 

Advertising  75.00 

In-Freight   50.00 

Heat,  Light  and  Janitor  (Office) '  15.00 

Appraisal  and  Audit  Fees 350.00 

Law  and  Organization  Expenses 250.00 

Auto  Up-Keep  90.00 

Telephone 40.00 

Debts  of  John  B.  Green  not  disclosed  at  date  of  turnover : 

On  Creditors'  Accounts $675.00 

On  Storage  Charges  (of  which  $5  is  for  current  month) 20.00         695.00 

The  stores'  merchandise  inventories  at  the  end  of  the  month  amount  to: 

Store  No.  1   •  $2,650.00 

Store  No.  2 1,875.00 

Store  No.  3 2,920.00 

Store  No.  4 2,115.00 

Store  No.  5  940.00 

The  stores'  cash  funds  are  reduced  to : 

Store  No.  1   $100.00 

Store  No.  2 50.00 

Store  No.  3 100.00 

Store  No.  4 50.00 

Store  No.  5  50.00 

Differences  are  found  in  the  stores'  cash  funds  at  the  close  of  the  first  month's  business : 

Store  No.  1  short  $3.00 

Store  No.  2 • over  LOO 

Store  No.  5  over  17.00 

The  general  merchandise  stock  shows: 

Spoiled  goods,  $60;  shortage  in  inventory  at  the  end  of  the  month,  $35. 

The  stores  receive  credit  for  spoiled  goods  : 

Store  No.  1  $15.00 

Store  No.  2 10.00 

Store  No.  3  20.00 

Store  No.  4 15.00 

Store  No.  5 30.00 

The  upper  floor  of  store  No.  1  building  is  tenanted,  and  rentals  at  $25  monthly,  payable  in  ad- 
vance, are  found  to  be  three  months  in  arrears — of  which  $50  is  paid  during  July. 
Insurance  expires  September  30,  1914. 

All  salaries  and  wages  are  payable  one-half  each  on  the  1st  and  15th  of  the  month. 
Dealers  have  paid  on  their  accounts  $4,200. 

Trade  creditors  have  been  paid  (of  which  $340  is  discounted)  $40,000. 
Depreciation  charges  (annual  rates)  : 
On  Buildings,  5%. 
On  Furniture  and  Fixtures,  10%. 
On  Automobiles,  25%. 

90 


Part  of  store  No.  2  building  is  used  for  the  general  office  and  store  room. 
You  are  asked  to  submit :  • 

a.  Opening  entries  on  the  books  of  the  corporation  (journal  form  with  brief  explanations),  taking 
over  the  business  of  John  B.  Green  and  including  payments  on  account  of  capital  stock  subscriptions. 

b.  General  cash  account  for  the  month. 

c.  Profit  and  loss  account  for  the  month ;  showing  also,  in  a  clear  and  simple  manner,  the  stores' 
operations  with  percentages  of  gross  profit  on  cost.  It  is  not  necessary  to  prorate  any  of  the  general 
business  expenses  to  the  stores. 

d.  Comparative  balance  sheet  as  at  July  1  and  July  31,  1914. 

e.  A  brief  statement  giving  the  grounds  of  your  conclusions  in  explanation  of  the  loss  on  goods 
sold  in  store  No.  5  (Wisconsin,  1915.) 

112.  (From    Wisconsin    C.    P.    A.    Examination.) 

Supplementing  the  problem  given  on  the  financial  aflPairs  of  the  John  B.  Green  Company,  you  are 
asked  to  submit  an  outline  of  a  simple  but  eflfective  accounting  system  for  such  corporations: 

a.  Submit  list  of  books  and  records. 

b.  Submit  captions  of  general  ledger  accounts,  set  up  in  trial  balance  form,  and  arranged  under 
proper  classification. 

c.  Submit  ruled  forms,  showing  columnar  headings,  for  all  books  required,  together  with  brief 
instructions  relative  to  the  use  and  purpose  of  each  form.  Also  indicate,  by  graph  or  otherwise,  rela- 
tionship of  the  various  books  and  records. 

d.  Give  suggestions  for  the  control  of  merchandise  stocks  in  the  stores,  to  have  a  reasonable  assur- 
ance that  cash  has  been  received  for  all  goods  sold. 

113.  (From  New  York  C.  P.  A.  Examination.) 

A  contracts  with  a  textile  establishment  to  sell  the  mill's  annual  output  on  the  following  condi- 
tions : 

The  mill  is  to  bill  the  output  to  A  at  cost.  A  is  to  finance  the  mill  to  the  extent  of  75%  of  cost  on 
receipt  of  goods.  The  balance  is  to  be  remitted  by  A  as  the  various  shipments  are  sold,  less  5%  and 
advances.  At  the  end  of  the  year  an  analysis  of  A's  affairs  reveals  the  following,  as  shown  by  his 
books,  the  goods  being  sold  at  10%  profit  above  factory  cost  (mill  shipments,  $7,327,918.18)  : 

Debits  Credits 

Mill  advances $5,545,938.00  $5,000,000.00 

Mill  sales .' 6,400,000.00  7,840,710.00 

Freight  and  cartage , 90,000.00  80,000.00 

Customers 7,840.710.00  7,632,200.00 

Cash 7,610,200.00  5,635,938.00 

Discounts    22,000.00             

Commission   320,000.00 

Mill  account  1,000,000.00 


$27,508,848.00   $27,508,848.00 
Prepare  A's  Financial  Statement. 

114.  A  large  manufacturing  concern  in  Chicago  has  Sales  Branches  in  various  large  cities  which 
have  exclusive  right  to  the  business  within  their  territories.  Each  branch  purchases  from  the  head  office 
and  makes  up  a  separate  profit  and  loss  statement.  The  New  York  branch  contracted  with  the  A  B 
Co.,  a  large  concern,  to  supply  their  requirements  all  over  the  country,  bills  to  be  paid  at  New  York, 
and  the  New  York  Branch  would  extend  proper  credit  to  the  various  branches  through  the  main  office, 
it  being  a  rule  of  the  company  that  "branches  cannot  deal  direct  with  one  another. 

On  January  1,  1904,  the  New  York  Branch  sold  a  carload  to  the  A  B  Co.,  Philadelphia,  consisting 
of  500  boxes  @  $4.00  per  box,  with  a  carload  allowance  of  10c  per  box.  The  cost  of  the  goods  was 
figured  @  25%  below  the  selling  price  and  the  freight  amounted  to  $24.65.  On  Jan.  9  the  New  York 
Branch  received  payment  less  2%  cash  discount  for  the  purchase. 

91 


What  entries  would  be  made  on  the  Main  Office  books,  the  New  York  Branch  books,  and  the 
Philadelphia  Branch  books? 

115.     (From  Illinois  C.  P.  A.  Examination.) 

The  Universal  Cash  Register  Company,  with  an  authorized  capital  of  $10,000,000.00,  of  which  $5,- 
000,000.00  has  been  issued  at  80  cents  on  the  dollar,  is  engaged  in  the  manufacture  of  cash  registers  and 
supplies  pertaining  thereto.  The  sale  of  these  cash  registers,  etc.,  is  accomplished  by  means  of  a 
large  number  of  branch  houses  and  agencies,  and  all  goods  shipped  by  the  factory  to  these  branch 
houses,  etc.,  are  put  on  consignment  account  at  list  prices.  In  addition  to  the  sale  of  new  cash  regis- 
ters they  also  sell  a  large  quantity  of  second-hand  registers,  which  they  have  obtained  by  taking  second- 
hand registers  in  part  payment  of  new  registers.  These  second-hand  registers  are  also  put  on  con- 
signment account,  but  not  at  list  prices,  but  at  actual  cost  to  the  company,  the  reason  for  this  pro- 
cedure being  that  they  have  no  fixed  selling  price  for  second-hand  machines,  their  branch  house  manag- 
ers and  agents  being  authorized  to  sell  them  at  as  high  a  figure  as  they  can  get,  but  on  no  account 
to  allow  themselves  to  become  overstocked  with  them.  It  often  happens  that  on  receiving  the  second- 
hand register  at  a  branch  it  is  found  advisable  to  ship  same  to  the  factory,  so  that  certain  repairs  may 
be  effected  to  put  it  in  saleable  condition.  When  these  repairs  are  completed  the  second-hand  register 
may  be  shipped  to  some  entirely  different  point  from  which  it  originally  came. 

Branch  house  managers  are  paid  a  fixed  salary,  but  attached  to  each  branch  house  are  a  number  of 
salesmen  who  receive  no  salary,  but  are  paid  on  a  purely  commission  basis,  and  on  the  same  terms  as 
those  given  to  agents.  For  the  purpose  of  this  question  it  will  be  assumed  that  no  register  is  ever  sold 
without  a  commission  being  paid  to  a  salesman  or  agent,  and  on  the  sale  of  every  new  register  the  rate 
of  commission  is  thirty  (30)  per  cent.  But  when  a  second-hand  machine  is  accepted  in  part  payment 
of  a  new  register  the  salesman  or  agent  only  receives  twenty  (20)  per  cent,  of  the  net  amount  that 
will  be  received  in  cash  and  notes  from  the  customer.  On  sales  of  second-hand  machines  a  commission 
of  twenty  per  cent,  is  paid.  The  terms  to  customers  are  25%  cash  and  the  balance  in  ten  equal  month- 
ly instalments,  a  separate  note  being  given  for  each  instalment.  Upon  failure  of  a  purchaser  to  pay 
any  part  of  the  purchase  price  the  register  is  pulled  (that  is,  taken  out  and  returned  to  the  agency  or 
branch  house  selling  same),  and  the  agent  or  salesman  then  only  receives  a  prorate  amount  of  his  com- 
mission, the  actual  cash  collected  being  the  basis  of  his  commission.  The  money  that  has  been  paid  in 
on  account  of  a  register  which  is  pulled  is  clear  profit,  barring  any  legal  expense  in  connection  with 
same,  and  the  customer's  open  account  or  notes  receivable  account  is  closed  out  by  a  transfer  to  an 
account  termed  "Retained  Payments."  The  branch  houses  and  agents  keep  no  accounts,  all  accounts 
and  collections  being  attended  to  at  the  head  office.  Among  others  the  following  accounts  are  kept  on 
the  general  books : 

New  Register  Consigned  Stock  Account   (always  debit  balance). 

New  Register  Consignment  Account  (always  credit  balance,  and  offsetting  balance  of  Consigned 
Stock  Account). 

Second-hand  Consigned  Stock  Account. 

Second-hand  Consignment  Account. 

New  Register  Sales  Account. 

Second-hand  Register  Sales  Account.  '' 

New  Register  Commission  Account. 

Second-hand  Register  Commission  Account. 

Notes  Receivable  Ledger  Account. 

Customers'  Ledger  Account. 

Second-hand  Register  Cost  Account. 

Agent  and  Salesman's  Commission  Ledger  Account. 

Retained  Payments. 

As  a  check  iipon  the  New  Register  Commission  Account  a  rule  is  laid  down  that  in  all  sales  of 
new  registers,  whether  a  second-hand  register  be  accepted  in  part  payment  or  not,  the  New  Register 
Commission  Account  must  be  charged  with  30%  of  the  list  price  of  register  sold. 

92 


Draw  up  journal  entries  for  the  following  transactions : 

a.  Herbert  Davison,  a  salesman  in  the  Chicago  branch,  sells  a  new  cash  register  to  the  Madison 
Restaurant  Company,  having  a  list  price  of  $240.00.  The  restaurant  company  one  month  after  de- 
livery of  the  register  pays  cash  of  $60.00  and  gives  ten  instalment  notes  of  $18.00  each,  the  first  one 
due  one  month  after  date,  the  second  two  months  after  date,  and  so  on.  After  meeting  the  first  five 
notes  the  Madison  Restaurant  Company  becomes  bankrupt,  and  the  Universal  Cash  Register  Company 
pulls  the  register.  Show  all  of  the  entries  necessitated  by  the  above  transactions,  including  commis- 
sions to  salesman. 

b.  Thomas  Smith,  an  agent  for  the  company,  sells  a  cash  register  to  Herbert  Findlay  for  $350.00 
and  takes  in  part  payment  a  second-hand  register  at  $50.00.  After  delivery  of  the  new  register  to  Her- 
bert Findlay  and  the  receipt  at  the  factory  of  the  second-hand  register  a  settlement  of  the  account  is 
eflfected  by  a  cash  payment  of  $75.00  and  the  acceptance  by  the  company  of  ten  instalment  notes  of 
$22.50  each  made  by  Herbert  Findlay.  The  latter  pays  the  first  two  notes,  but  fails  to  make  any  more 
payments  on  the  other  notes.  The  register  is  therefore  pulled.  Show  all  of  the  entries  necessitated 
by  the  above  transactions,  including  commission  to  Thomas  Smith,  the  agent. 

c.  The  second-hand  register  returned  to  the  factory  and  referred  to  in  the  last  question  has 
repairs  put  upon  it  costing  $25.00,  and  it  is  then  shipped  to  the  New  York  Branch  and  consigned  to 
them  at  the  actual  cost  to  the  Universal  Cash  Register  Company  up  to  that  time.  A  salesman,  Edgar 
Robinson,  sells  the  register  to  Abner  Johnson  for  $100.00,  and  the  latter  settles  for  same  by  paying  cash 
down.  Show  all  of  the  entries  necessitated  by  the  above  transaction,  including  commission  to  Edgar 
Robinson,  and  also  state  what  profit  the  company  made  on  this  register  and  how  you  arrive  at  same. 


93 


PART  VII 


MANUFACTURING  ACCOUNTS 


116.     (From  Massachusetts  C.  P.  A.  Examination,  October,  1914.) 

Jones  Manufacturing  Company,  Trial  Balance,  December  31,  1913  (before  closing). 

Dr.  Cr. 

Accounts  payable    .  . .  r $22,560.71 

Accounts  receivable   $42,739.66 

Capital  stock    150,000.00 

Cash  in  banks   3,706.82 

Commissions ".  7,750.71 

Depreciation    12,067.30 

Discount  on  sales 4,986.22 

Discount  on  purchases    6,792.40 

Finished  product  (inventory  at  December  31,  1912) 110,630.84 

Freight  inward    4,709.81 

Freight  outward    3,542.39 

Factory  expense    52,796.57 

Insurance 5,372.90 

Interest 3,850.00 

Labor    179,473.82 

Machinery  and  equipment 120,672.96 

Material  purchased 158,691.26 

Material  inventory  (at  December  31,  1912) 10,786.90 

Notes  payable 60,000.00 

Office  and  selling  expenses 14,790.82 

Petty  cash  150.00 

Prepaid  taxes   672.80 

Prepaid  interest 375.00 

Power 7,500.00 

Reserve  for  depreciation 20,978.23 

Repairs 5,281.76 

Rent    15,000.00 

Salaries    32,250.00 

Sales   570,478.31 

Supplies   6,872.90 

Surplus 42,146.08 

Taxes 2,937.50 

Traveling  expenses 4,836.24 

Unexpired  insurance 6,821.16 

Work  in  process  (inventory  December  31,  1912) 53,689.39 

$872,955.73      $872,955.73 
Inventories  at  December  31,  1913,  are: 

Material   $9,877.44 

Work  in  process 56,091.29  , 

Finished  product  71,170.10 

From  the  above  Trial  Balance  and  facts  prepare : 

a.  Balance  Sheet  December  31,  1913. 

b.  Statement  showing  cost  of  manufacture. 

c.  Profit  and  Loss  account. 

d.  Closing  Entries. 

94 


117.     Anderson   Manufacturing   Company,  Trial  Balance,  April  30,  1916. 

Land  and  buildings  (cost)   $68,000.00 

Machinery  and  equipment  (cost) 36,800.00 

Office  furniture  and  fixtures  (cost) 12,300.00 

Sales  room  equipment  (cost)   9,840.00 

Factory  tools  and  supplies  (on  hand  Dec.  31,  1915) 834.00 

Cash 2,960.00 

Accounts  receivable 43,680.39 

Subscriptions  to  capital  stock — common 8,000.00 

Securities  owned  (cost)   12,500.00 

Good  will 10,000.00 

Patent  rights 8,400.00 

Raw  materials  (on  hand  Dec.  31,  1915,  $15,432.60;  purchases,  $46,380.40)  . .  61,813.00 

Manufacturing  (in  process  Dec.  31,  1915) ■  20,268.80 

Finished  goods  (on  hand  Dec.  31,  1915) 36,261.15 

Bond  discount  and  expenses 9,000.00 

First  mortgage  bonds 70,000.00 

Accounts  payable    17,576.16 

Capital  stock — preferred  (authorized  issue,  1,000  shares,  par  $100  each) 70,000.00 

Capital  stock — common  (authorized  issue,  2,000  shares,  par  $100  each) 85,000.00 

Surplus  (undivided  profits,  Dec.  31,  1915) 13,869.20 

Capital  stock — common,  subscribed •.  . . .  16,000.00 

Sales  of  finished  goods 85,239.41 

Salesmen's  salaries  and  expenses 8,269.40 

Delivery  expenses 3,732.89 

Office  clerks'  salaries ; 5,321.76 

General  office  supplies  used 1,869.30 

Taxes 486.00 

Insurance 1,240.00 

Direct  labor 14,178.32 

Indirect  labor 5,650.00 

Factory  heat,  light  and  power 2,730.46 

Reserve  for  depreciation  of  buildings 15,000.00 

Reserve  for  depreciation  of  machinery  and  equipment  7,682.40 

Reserve  for  depreciation  of  office  equipment 2,800.00 

Reserve  for  depreciation  of  sales  room  equipment 968.30 


$384,135.47      $384,135.47 
Adjustments : 

Cost  of  buildings,  $45,000;  estimated  life,  thirty  years. 
Estimated  life  of  machinery  and  equipment,  eight  years. 
Estimated  life  of  office  furniture  and  fixtures,  ten  years. 
Estimated  life  of  salesroom  equipment,  ten  years. 
Factory  tools  and  supplies  on  hand  April  30,  1916,  $500.00. 

The  first  mortgage  bonds  were  issued  January  1,  1916,  arid  mature  January  1,  1926.    The  bond  dis- 
count and  expenses  are  to  be  written  off  over  that  time. 

The  bonds  bear  interest  at  the  rate  of  6%  per  annum,  payable  January  1  and  July  1. 

Insurance  prepaid,  $620.00, 

Raw  materials  on  hand,  April  30,  1916 $10,400.00 

Goods  in  process,  April  30,  1916 36,126.50 

Finished  goods  on  hand,  April  30,  1916 28,740.80 

95 


REQUIRED: 

a.  Adjusting  Entries. 

b.  Manufacturing  Statement. 

c.  Profit  and  Loss  Statement. 

d.  Balance  Sheet. 

e.  Closing  Entries. 


118.     The  following  items  are  taken  from  the  trial  balance  of  the  Conant  Manufacturing  Company, 
as  of  June  30,  1916,  after  all  adjustments  are  made : 


Sales 

Finished  goods  inventory,  June  1 

Finished  goods  purchased 

Freight  outward 

Rent  of  sales  room 

Manager's  salary . '. 

Advertising 

Salesmen's  commissions 

Office  expense 

Shipping  cartons  and  labels 

Indirect  labor 

Superintendence    

Goods  in  process,  June  1 

Raw  materials  purchased 

Raw  materials  inventory,  June  1 

Sales  returns '. 

Purchase  returns  (raw  material) 

Direct  labor   

Factory  rent 

Light,  heat  and  power 

Insurance  on  machinery 

Repairs  and  renewals 

Factory  supplies    

Sales   discounts    

Loss  on  bad  debts 

Purchase  discounts 

Interest  on  notes  payable 

Rent  income  (2nd  floor  of  factory  sub-let) .... 

Depreciation  of  plant 

Taxes  on  plant ... 

Freight  and  cartage  in 

Salesmen's  salaries . . 


$6,656.85 

300.00 

195.00 
34.97 
60.00 

135.00 
16.75 
33.10 

108.15 
22.80 
72.33 

100.00 
1,200.31 
1,880.27 
5,672.18 

119.80 
27.65 

548.68 

100.00 

86.00 

6.10 

32.15 

117.50 
39.01 
22.32 
25.93 
15.00 
41.67 
96.50 
36.00 
29.17 

200.00 


Following  is  the  required  work : 

a.  Statement  showing  cost  of  goods  manufactured. 

b.  Profit  and  loss  statement.  . 

c.  Closing  entries  only  so  far  as  they  apply  to  the  manufacturing  accounts. 

Take  into  account  the  following  inventories  as  of  June  30 : 

Raw  materials   $3,984.83 

Goods  in  process  1,468.15 

Finished  goods 330.86 

Factory  supplies 25.00 

96 


The  period  covered  is  one  month. 

119.     (From   Boston   Examination   for   High    School  Commercial  Teachers.) 

From  the  trial  balance  of  the  Wonder  Machine  Shoe  Company  prepare  a  balance  sheet  and  state- 
ment with  sections  showing  manufacturing  costs,  trading  results  and  profit  and  loss. 

Reserve  for  the  depreciation  of  machinery,  10%;  of  tools,  10%;  of  lasts  and  patterns,  20%.  Re- 
serve for  loss  from  bad  debts  an  amount  that,  when  added  to  the  reserve  for  that  purpose  already 
in  force,  will  make  the  sum  1%  of  the  book  accounts. 

Inventories,  December  31,  1913.  . 

Raw  materials   $5,397.24 

Factory  supplies 820.20 

Fuel 1,592.17 

Goods  in  process 18,493.12 

Finished  goods 8,898.61 

Interest  accrued  on  notes  held 37.00 

Interest  accrued  on  notes  outstanding 55.00 

Work  done  with  a  pencil,  and  ruling  made  free-hand  will  be  accepted. 

Trial  balance,  December  31,  1913. 

Real  estate    $81,035.00 

Machinery  and  equipment 57,750.00 

Tools 5,259.00 

Last  and  patterns   35,260.00 

Office  equipment 3,396.00 

Raw  materials,  inventory  January  1 14,378.40 

Goods  in  process  23,631.50 

Finished  goods 15,686.31 

Accounts  receivable    62,316.50 

Bills  receivable 4,388.45 

Cash    22,902.63 

Good  will : 30,000.00 

Reserve  for  depreciation  of  lasts  and  patterns $15,411.75 

Reserve  for  bad  debts i.  .  "                           361.22 

Accounts  payable 18,580.70 

Bills  payable 6,500.00 

Capital  stock 200,000.00 

Surplus 7,329.46 

Mortgages  payable   ." .  .  20,000.00 

Sales   419,752.35 

Discount  on  purchases 7,290.40 

Factory  supplies T 8,817.62 

Raw  material  purchased 145,481.69 

Labor 110,371.84 

Freight  inward    1,845.25 

Indirect  labor 5,193.00 

Manufacturing  expenses 14,280.30 

Selling  expenses 25,792.65 

General  expenses 16,123.75 

Interest 1 10.60 

Allowances  to  customers 552.25 

Discount  on  sales S,818.75 

Collection  and  exchange 340.81 

Returned  sales 1,493.58 


$695,225.88      $695,225.88 
97 


120.     (From  New  York  City  Examination  for  Teachers  of  Bookkeeping.) 

A  trial  balance  of  the  Brown  Manufacturing  Company  on  January  1,  1912,  after  closing  the  books 
was  as  follows : 

Trial  Balance,  Brown  Manufacturing  Co.,  Jan.  1,  1912. 

Capital  stock  authorized $250,000.00 

Unsubscribed  stock $20,000.00 

Surplus 3,000.00 

Plant  and  machinery  . 178,000.00 

Furniture  and  fixtures  4,500.00 

Raw  material,  inventory,  January  1 48,000.00 

Finished  goods,  inventory,  January  1 5,000.00 

Fuel,  light  and  oil,  inventory,  January  1 1,125.00 

Office  supplies,  factory,  inventory,  January  1 300.00 

Office  supplies,  selling  office,  January  1 275.00 

Notes  receivable 20,000.00 

Accounts  receivable   39,000.00 

Cash    5,500.00 

Notes  payable 12,000.00 

Accounts  payable    29,500.00 

Reserve  for  bad  debts  and  notes -  1,000.00 

Reserve  for  plant  and  machinery 26,000.00 


$321,500.00      $321,500.00 


98 


During  the  six  months  following,  the  volume  of  business  transacted  was : 

Purchases  of  raw  material  for  cash $2,000.00 

Purchases  of  raw  material  on  account 325,000.00 

Notes  issued  to  creditors  on  account '. .  .  42,000.00 

Sales  of  finished  product  for  each 15,000.00 

Sales  of  finished  product  on  account               375,000.00 

Notes  received  from  customers  on  account 70,000.00 

Goods  returned  from  customers 2,650.00 

Discount  on  sales 1,600.00 

Raw  material  returned 5,875.00 

Discount  on  purchases 1,900.00 

Cash  received  from  customers  on  account ' 294,000.00 

(In  addition  to  the  above  receipts,  one  customer  who  owed  $1,400 
paid  50%  on  the  dollar,  balance  lost.) 

Notes  receivable  discounted  at  bank,'  face 21,000.00 

Discount  on  above  notes 450.00 

Notes  receivable  and  interest  paid  at  maturity : 

Face  of  notes 52,000.00 

Interest   600.00 

Notes  payable  and  interest  paid  at  maturity : 

Face  45,000.00 

Interest   850.00 

Cash  paid  to  creditors 198,400.00 

Other  transactions  were,  cash  payments  as  follows : 

Freight  and  cartage  in 666.00 

Freight  and  cartage  out 400.00 

Insurance  on  plant  and  machinery 1,200.00 

Maintenance  and  repairs 6,200.00 

Factory  salaries  7,400.00 

Direct  labor 80,500.00 

Indirect  labor '.  5,000.00 

Fuel,  light  and  oil 2,275.00 

General  expense,  factory 900.00 

Selling  expense 13,000.00 

Advertising   2,000.00 

Legal  services 350.00 

A  regular  quarterly  dividend  of  2%  on  the  outstanding  stock  was  declared  and  paid. 

Construct  a  trial  balance  of  totals  as  of  June  30,  1912. 

Prepare  condensed  current  and  adjusting  entries,  a  manufacturing,  trading  and  profit  and  loss 
statement  and  balance  sheet  from  your  trial  balance  in  question,  giving  due  consideration  to  the  fol- 
lowing facts : 

Inventories,  June  30,  1912. 

Finished  goods '. $10,500.00 

Raw  material   25,000.00 

Insurance  unexpired 800.00 

Direct  labor  unpaid 600.00 

Fuel  and  oil 150.00 

Furniture  and  fixtures,  book  value  less  10% 

Interest  accrued  on  notes  receivable 47.00 

Interest  accrued  on  notes  payable 38.00 

Provide  for  5%  depreciation  on  plant  and  machinery,  and  2%  for  reserve  for  bad  debts  and  notes. 

99 


121.     (From  Virginia  C.  P.  A.  Examination.) 

Charles  Cabell,  William  West  and  Henry  Hart  form  a  partnership  for  the  purpose  of  engaging 
in  the  manufacture  of  plug  and  smoking  tobacco.  Cabell  invests  $75,000,  West,  $50,000,  and  Hart, 
$25,000.  Profits  or  losses  are  to  be  shared  as  follows :  Cabell,  one-half ;  West,  one-third ;  Hart,  one- 
sixth.  Interest  is  not  to  be  allowed  on  capital  nor  charged  on  drawings,  but  each  partner's  drawings 
in  any  one  year  are  not  to  exceed  one-tenth  of  his  capital  in  the  business. 

At  the  end  of  their  first  fiscal  year  their  ledger  shows  the  following  balances : 

Charles  Cabell,  capital  account $75,000.00 

William  West,  capital  account 50,000.00 

Henry  Hart,  capital  account 25,000.00 

Charles  Cabell,  withdrawal  account $5,842.17 

William  West,  withdrawal  ac^rount 4,179.16 

Henry  Hart,  withdrawal  account 2,033.88 

Land  and  buildings 25,000.00 

Machinery 11,026.92 

Furniture  and  fixtures  .^.. 1,866.13 

Cash    " 8,730.45 

Accounts  receivable    131,244.49 

Bills  receivable 4,999.97 

Accounts  payable    6,138.16 

Bills  payable 118,060.62 

Sales — plug  tobacco   249,472.43 

Sales — smoking  tobacco 61,882.25 

Sales— stems  • 841 .95 

Leaf  tobacco 200,044.57 

Licorice  and  flavoring 21,918.66 

Boxes    ♦. : 8,572.10 

Labor   25,182.47 

Stamps 48,476.24 

Power,  light  and  heat 3,571.60 

Factory  expense .' 7,380.55 

Hauling    1,451.30 

Salaries 12,443.71 

Office  expense 4,228.87 

Insurance 1,682.90 

Interest  and  discount 9,164.47 

Postage    1,211.97 

Attorneys'  fees 769.25 

Salesmen's  salaries,  commissions,  etc 38,795.15 

Advertising 5,149.09 

Lost  accounts 1 ,429.34 


$586,395.41      $586,395.41 
Ten  per  cent,  is  to  be  charged  oflF  from  Machinery  Account,  to  cover  depreciation,  and  a  Reserve 
equal  to  two  per  cent,  of  the  Accounts  and  Bills  Receivable  is  to  be  created,  to  cover  possible  undevel- 
oped losses. 

The  unexpired  insurance  premiums  amount  to  $331.11. 
Inventories  are  as  follows : 

Finished  goods $38,189.42 

Goods  in  process  1 1,209.36 

Leaf  tobacco 49,128.98 

Licorice  and  flavoring 1,511.68 

Boxes 1,073.04 

Stems 43.31 

Prepare  statement  showing  cost  of  goods  manufactured.  Profit  and  Loss  Statement  and  Balance 
Sheet,  making  necessary  adjusting  entries. 

100 


122.     (From  Massachusetts  C.  P.  A.   Examination.) 

The  following  is  a  trial  balance  June  30,  1914,  before  closing  of  the  ledger  of  a  textile  mill. 

Land $10,000.00 

Buildings 75,000.00 

Machinery 119,138.73 

Tenements 1,670.66 

Finished  goods,  inventory,  Jan.  1,  1916 66,984.43 

Stock  in  process,  inventory,  Jan.  1,  1916 57,042.38 

Yarn 259,882.12 

Cash 12,769.19 

Petty  cash 106.39 

Accounts  receivable 46,085.68 

Mortgage  receivable 875.00 

Labor 25,979.27 

Supplies 2,974.31 

Repairs 956.63 

Oils 50.84 

Coal 1,443.20 

Starch 1,390.00 

Water 122.65 

Finishing 15,381.54 

Brokerage    • 660,50 

Commission 4,580.67 

Discounts  allowed 1,246.84 

Insurance 679.92 

Taxes 1,502.81 

General  expense 389.39 

Freight  and  express 974.34 

Telephone  and  telegraph 68.72 

Traveling  expense 274.85 

Interest  paid  409.80 

Discount  on  notes  payable 1,408.00 

Profit  and  loss  20,694.00 

Dividends   3,375.00 

Capital  stock — preferred  6%  cumulative 100,000.00 

Capital  stock — common 263,800.00 

Accounts  payable 40,864.56 

Notes  payable 187,500.00 

Cloth  sales 137,818.07 

Waste  sales 922.94 

Tenement  rents  received 339.50 

Discount  taken 2,073.59 


$734,118.66      $734,118.66 


101 


Inventories  and  Items,  June  30,  1916 : 

Finished  goods $104,190.24 

Stock  in  process 71,242.39 

Yarn    135,661.63 

1,000.00' 

900.00 

1,150.00 

389.41 

211.11 

2,051.05 

600.00 

402.26 

100.00 

100.00 

817.29 

460.86 


Coal 

Starch  

Supplies   

Interest  accrued  on  notes  payable. 

Interest  prepaid  on  notes  payable 

Wages  accrued 

Unexpired  insurance 

Prepaid  taxes   

Prepaid  water  rates 

Bad  debts 

Estimated  discounts  to  be  taken  on  accounts  payable  .... 
Estimated  discounts  to  be  allowed  on  accounts  receivable 


Depreciation  rates  per  annum  are  5%  on  machinery,  3%  on  tenements,  2%  on  mill  buildings. 

123.     (From  New  York  C.  P.  A.   Examination.) 

The  directors  of  a  manufacturing  company  submit  the  following  trial  balance  to  an  accountant, 
requesting  that  he  inform  them  as  to  what  percentage  of  dividend  they  may  safely  declare  out  of  the 
year's  net  income : 

Trial  Balance,  December  31,  1916 


Real  estate    

Plant  and  machinery   

Patents  and  good  will 

Inventory,  Jan.  1,  1916 

Purchases   

Labor 

Coal   

Salaries,  general 

Salaries,  management 

Insurance 

Repairs    

Claims  and  allowances 

Prepaid  freight  (inch  in  invoice  price) . 

Interest  and  discount 

Cash    

Investments 

Miscellaneous  expenses   

Accounts  receivable 

Deficit,  Jan.  1,  1916.. 


$94,000 

80,000 

160,000 

58,000 

165,000 

176,000 

12,000 

22,000 

10,000 

1,750 

2,000 

12,500 

3,000 

1,500 

16,000 

31,000 

8,600 

84,000 

2,000 

$939,350 


Capital  stock , 

Sales   

Accounts  payable 

Notes  payable 

Dividends  on  stocks  owned. 
Rentals 


$422,000 

438,350 

20,000 

52,000 

3,000 

4,000 


$939,350 


Inventory  December  31,  1916,  $53,000.  Four  employees.  A,  B,  C,  and  D,  receive  as  additional  sal- 
aries the  following  percentages  of  the  earnings  measured  by  the  net  income:  A,  25%;  B,  I2y^%  ;  C, 
6}4%,  and  D,  6%%.  Furnish  the  required  information,  together  with  a  financial  statement  and  an  in- 
come account. 

Depreciation  for  the  period  of  six  months  ending  December  31,  1915,  was  not  put  upon  the  books. 
No  additions  have  been  made  to  the  fixed  assets  within  a  year. 

Estimated  discounts  on  the  Accounts  Receivable  and  Payable  were  not  put  upon  the  books  Janu- 
ary 1,  1916.     These  were,  respectively,  $400.00  and  $750.00. 

The   last  two  semi-annual  dividends  on   Preferred  Stock  are  unpaid. 

Prepare  proper  statement  for  a  report  to  the  directors  as  of  December  31,  1916. 


102 


124.  (From  Michigan  C.  P.  A.  Examination,  July,  1909.) 

A  company  of  bicycle  manufacturers  makes  up  its  accounts  December  31,  1907,  for  the  year.  The 
following  are  the  debits  to  the  profit  and  loss  account : 

Raw  material  on  hand  January  1,  1907 $12,500.00 

Finished  machines  on  hand  January  1,  1907,  1,600  wheels  at  $30 48,000.00 

Purchases  of  material 62,500.00 

Labor,  productive   82,500.00 

Manufacturing  expenses  :    Coal,  repairs,  paint,   varnish,   superintendents' 

.  salaries,  unproductive  labor  and  sundry  other  expenses 23,000.00 

Agents'  commissions 90,000.00 

Branch  expense :    Rents,  salaries  and  miscellaneous .-. 40,000.00 

Selling  expense :     Travelers'  expenses  and  salaries,     discounts,     rebates 

and  miscellaneous   30,000.00 

Bad  debts 8,000.00 

Depreciation  on  machinery  and  plant 5,500.00 

The  sales  for  the  year  1907  were  6,000  wheels,  yielding  $540,000;  the  raw  material  on  December  31, 
1907,  taken  at  cost,  were  $4,000,  and  the  finished  wheels  in  stock  ready  for  sale  numbered  800.  Prepare 
an  account  from  the  above  showing: 

a.  Number  of  wheels  manufactured. 

b.  The  cost  per  wheel. 

c.  The  gross  manufacturing  profit. 

d.  The  final  net  result,  including  in  the  profit  and  loss  account  the  stock  of  finished  wheels  on 
hand  December  31,  1907,  at  their  cost  as  shown  by  the  accounts. 

125.  (From   Massachusetts  C.  P.  A.   Examination.) 

The  main  office  of  a  manufacturing  concern  keeps  the  general  books  of  the  company  and  sells  the 
finished  product,  which  is  billed  to  it  by  the  factory  at  cost.  The  cost  books  of  the  factory  show  the 
following  facts  on  January  1,  1914: 

Cash  Fund  (imprest),  $500.00;  Raw  Materials  and  Supplies,  $15,910.32;  Work  in  Process,  made  up 
of  Material  and  Direct  Labor,  $55,816.25;  Factory  Expenses,  $10,592.16;  and  Management  Expenses, 
$6,200.83  ;  Finished  Product,  $40,219.57.     A  portion  of  the  payroll  distributed  but  not  yet  paid,  $3,553.42. 

During  the  year  1914  the  transactions  were  as  follows:  Purchases  of  raw  materials,  $91,113.20; 
Wages  Paid,  $143,273.49 ;  Factory  Expenses,  Charged,  $53,383.83 ;  Management  Expenses,  Charged, 
$40,315.33;  Sale  of  Power  to  another  company  occupying  adjacent  buildings,  $100.00  per  month. 

The  raw  materials  and  supplies  used  amounted  to  $90,265.72 ;  the  management  charges  distributed 
to  $40,315.33,  and  Factory  Expenses  distributed,  $63,519.10.  There  are  also  on  hand  unpaid  local  bills 
which  have  not  been  entered  on  the  books  amounting  to  $135.27,  all  of  which  were  for  factory  expense. 

The  finished  product  made  during  the  year,  figured  at  cost,  amounted  to  $338,652.32,  the  amount  of 
finished  product  transferred  to  the  main  office  was  $340,192.45. 

At  the  close  of  the  year  December  31,  1914,  there  was  unpaid  and  undistributed  the  factory  payroll 
for  four  days  amounting  to  $2,942.10,  and  also  550  hours  of  overtime,  payable  at  the  rate  of  time  and  one- 
quarter,  the  regular  day  rate  being  35c  per  hour. 

Write  up  all  the  ledger  accounts  on  the  factory  books  and  show  the  final  trial  balance  of  December 
31,  1914. 


103 


126.     (From  Ohio  C.  P.  A.  Examination.) 

At  the  close  of  its  fiscal  year,  December  31,  1915,  the  Trial  Balance  of  The  Nau-Pace  Company 
was  as  follows : 

Real  estate $225,000.00 

Fixed  machinery   150,000.00 

Movable  equipment 18,000.00 

Shaftings,  pulleys,  etc 10,500.00 

Stable   equipment    3,500.00 

Office  equipment  2,915.90 

Drawings  and  patterns 9,000.00 

Patents  75,000.00 

Capital  stock $500,000.00 

First  mortgage  bonds 100,000.00 

Profit  and  loss 

Surplus 86,140.28 

Dividends  300.00 

Interest  on  bonds 5,000.00 

Other  interest  paid 1,323.10 

Interest  received • 2,469.50 

Cash  discount  on  purchase 13,389.52 

Cash  discounts  on  sales 2,861 .50 

Sales 1,540,816.75 

Return  sales 8,258.25 

Cash    27,750.65 

Bills  receivable 50,750.00 

Accounts  receivable 298,650.25 

Raw  materials 622,190.90 

Finished  goods,  Jan.  1,  1915 62,735.06 

Goods  in  process,  Jan.  1,  1915 24,747.27 

Fuel   38,688.28 

Insurance 4,000.00 

Taxes 5,000.00 

Bills  payable 40,000.00 

Accounts  payable 46,585.85 

Reserve  for  depreciation : 

Machinery  and  equipment 50,000.00 

Buildings   30,000.00 

Patents 22,058.80 

Bad  accounts   6,240.75 

Salaries,  offices  and  clerks  (general) 56,150.00 

General  office  supplies 2,950.75 

Postage,  telegraph  and  telephone 1,560.00 

Miscellaneous  general  expenses 850.00 

Advertising  35,000.00 

Salaries  and  expenses,  salesmen 72,350.31 

Agents'  commissions 30,141.40 

Credit  department  salaries 7,560.00 

Miscellaneous  expenses,  selling 610.00 

Stable  expenses   3,963.46 

Direct  labor  (mfg.)  508,311.39 

Indirect  labor  (mfg.) 44,981.01 

Superintendence,  factory 6,000.00 

Factory  supplies 8,547.18 

104 


Repairs  machinery  and  equipment 7,418.52 

Repairs  of  buildings ' 2,860.47 

Power,  heat  and  light 2,875.80 

$2,438,001.45   $2,438,001.45 

You  are  to  take  into  consideration  the  following  facts : 

1.  Real   Estate,  Machinery  and  other  Factory  equipment,  and  Patents  are  stated  at  cost. 

2.  Of  the  Real  Estate  $25,000  is  for  Land  and  $200,000  is  for  Buildings.      ^ 

3.  All  Capital  Stock  authorized  has  been  issued  and  is  outstanding. 

4.  Allowances  for  depreciation  are  : 

Machinery  and  Factory  Equipment,  $15,000. 
Buildings,  3%  on  cost. 
Patents  l/17th  of  cost. 

5.  $15,000  is  to  be  set  aside  as  a  reserve  for  bad  accounts. 

6.  Ten  per  cent,  of  the  book  values  of  Stable  Equipment  and  Office  Equipment,  and  l/6th  of  the 
book  value  of  Drawings  and  Patterns  are  to  be  charged  off. 

7.  Inventories  at  the  close  of  the  fiscal  year  were : 

Raw  materials $63,580.40 

Finished  goods 58,864.56 

Goods  in  process 27,024.52 

Fuel   '. 4,823.43 

Factory  supplies 1,525.00 

Office  supplies   500.00 

Prepaid  insurance   500.00 

8.  The  accruals  are  : 

Taxes    $7,000.00 

Direct  labor    12,618.75 

Indirect  labor ' '       2,040.50 

Interest  on  bonds 1,000.00 

Advertising 4,718.50 

9.  The  depreciation  on  Stable  Equipment  (see  item  6)  is  to  be  charged  to  Stable  Expenses,  and 
one-third  of  the  latter  is  apportioned  to  Manufacturing  Expenses  and  two-thirds  to  Selling  Expenses. 

10.  The  cost  of  Fuel  used  is  to  be  charged  to  Power,  Heat  and  Light. 

11.  Maintenance  of  Real  Estate  is  to  be  charged  with  cost  of  repairs  to  Buildings,  depreciation 
on  Buildings,  20%  of  Taxes  for  the  year,  and  $1,000  for  insurance.  The  total  cost  of  such  maintenance 
is  to  be  shown  as  an  item  of  manufacturing  expense  on  the  statement  of  Cost  of  Sales. 

12.  The  portion  of  Insurance  remaining  after  charging  Maintenance  of  Real  Estate  is  to  be 
allocated  to  manufacturing  expenses. 

13.  Thirty  per  cent,  of  the  Taxes  for  the  year  is  to  be  apportioned  to  manufacturing  expenses 
and  50%  is  to  be  charged  against  income. 

14.  Of  the  salaries  of  Officers  and  Clerks,  General,  $3,600  should  be  apportioned  to  selling  ex- 
penses. 

15.  Amongst  the  Bills  Receivable  is  a  note  for  $5,000,  pertaining  to  a  previous  fiscal  year,  which  is 
considered  to  be  worthless.     No  provision  was  made  for  such  loss. 


105 


PART  VIII  ;, 

MISCELLANEOUS   PROBLEMS 

Section  I — Practical  Accounting 

127.  (From  Illinois  C.  P.  A.  Examination.) 

In  taking  off  a  trial  balance  a  bookkeeper  finds  that  his  debit  footing  exceeds  the  credit  by  $131.56, 
which  amount  he  carries  to  a  Suspense  Account.  Later  he  discovers  that  a  purchase  amounting  to 
$417.50  had  been  debited  to  a  creditor  as  $192.94;  that  $312.50  for  depreciation  of  machinery  had  not 
been  posted  to  Depreciation  account ;  that  $500  withdrawn  by  the  proprietor  had  been  charged  to  Wages 
account;  that  a  discount  allowed  to  a  customer  of  $76.13  had  been  posted  to  the  wrong  side  of  Mer- 
chandise Discount  account ;  and  that  the  total  of  sales  returned  was  footed  $5  short.  Give  entries  show- 
ing how  you  would  remedy  these  errors,  and  starting  with  the  original  difference,  prepare  a  supple- 
mentary schedule  showing  whether  the  books  are  now  in  balance. 

128.  (From  Massachusetts  C.  P.  A.   Examination.) 

Brown  has  a  customers'  ledger,  a  purchase  ledger  and  a  general  ledger,  the  latter  containing  con- 
trolling accounts  with  the  other  two.  When  his  bookkeeper  submitted  to  him  trial  balances  of  the 
three  he  observed  that  White  owed  him  $100,  subject  to  a  cash  discount  of  2^%,  and  an  allowance  for 
outward  freight  of  $1.68,  neither  of  which  items  has  been  entered  in  the  books;  and  that  he  owed  White 
$100,  subject  to  a  discount  of  4%,  which  had  not  been  entered.  He  directed  the  bookkeeper  to  adjust 
the  accounts  by  a  remittance  of  stamps.  Draft  entry  or  entries  that  will  close  the  two  personal  ac- 
counts and  maintain  the  reconcilement  of  the  ledgers.  Separate  accounts  are  kept  for  Customers'  Dis- 
count and  Purchase  Discount. 

129.  (From  Massachusetts  C.   P.  A.   Examination.) 

You  are  instructed  to  make  an  examination  of  a  business  for  the  purpose  of  preparing  a  statement 
of  assets  and  liabilities  as  of  December  31,  1913.  The  inventory  was  taken  on  January  10,  1914,  and 
amounted  at  that  time  to  $7,689.25.  The  sales  billed  between  December  31  and  January  10  amounted 
to  $945,  but  you  discover  that  $300  worth  of  these  goods  had  been  shipped,  and  therefore  should  have 
been  billed  before  December  31.  The  goods  received  between  December  31  and  January  10  cost 
$678.25.    The  average  gross  profit  of  this  concern  is  25%  above  cost. 

Calculate  the  inventory  as  of  December  31. 

130.  (From  Massachusetts  C.   P.  A.   Examination.) 

The  Auditing  Committee  of  the  Washington  Savings  Bank  (Mass.)  called  upon  a  certified  public 
accountant  to  prepare  a  statement  as  at  the  close  of  business  on  May  28,  1912,  of  the  estimated  net 
earnings  of  the  six  months  ending  May  31,  1912,  applicable  to  a  dividend  on  June  1,  1912. 

The  deposits  amounted  to  $10,400,000,  and  the  Guaranty  Fund  to  $442,000.  The  Interest  account 
showed  a  credit  balance  of  $248,000,  made  up  as  follows: 

Received  from  real  estate  loans $124,000.00           , 

Received  from  personal  loans 12,000.00 

Received  from  investments 108,000.00 

Arrears,  uncollected,  credited  to  interest  and   simultaneously   charged   to 

profit  and  loss 4,000.00 

The  expenses  were  $13,600,  and  the  State  Tax  (net),  $11,440.  The  balance  of  the  Profit  and  Loss 
account  on  November  30,  1911,  was  $96,000,  of  which  $2,400  was  undivided  earnings  of  the  six 
months  ended  that  date.    Subsequent  charges  to  this  account  were : 

Premiums  on  securities  purchased $880.00 

Loss  from  book  value  of  securities  sold .  664.00 

Loss  from  book  value  of  foreclosed  property  sold 1,000.00 

The  arrears  of  interest  mentioned  above 4,000.00 

106 


A  dividend  of  $240  received  in  liquidation  of  bank  stock  previously  written  off  had  been  credited  to 
Profit  and  Loss. 

The  follow^ing  are  his  estimates  for  the  remaining  days  of  the  period: 

Net  increase  in  deposits ' $48,000.00 

Interest  receipts 5,600.00 

Expense 2,400.00 

Assuming  the  correctness  of  the  accountant's  estimates,  prepare  such  a  statement,  setting  apart  as 
a  guaranty  fund  the  minimum  amount  sanctioned  by  law. 

131.  (From  New  York  C.  P.  A.  Examination.) 

A  is  a  superintendent  in  the  employ  of  X  &  Y,  a  firm  of  manufacturers,  and  has  an  interest  in  the 
profits.  On  September  8,  1914,  X  &  Y  indorse  A's  $3,500  note,  due  in  six  "months  with  interest  at  6%. 
X  &  Y  charge  the  fee  of  1%  ($36.05)  to  A's  account  on  the  firm's  books.  A  sells  this  note  to  a  private 
note  broker.  On  March  10,  1915,  X  &  Y  pay  $3,607.50,  inclusive  of  protest  fees,  to  the  holder  of  the 
note,  which  A  had  permitted  to  be  dishonored.  What  entries  are  necessary  on  the  books  of  X  &  Y  to 
record  the  transaction? 

132.  (From  Michigan  C.  P.  A.  Examination.) 

A  contractor  proposes  to  build  a  bridge  to  Belle  Isle  and  accept  the  city's  4%  20-year  bonds  to  the 
amount  of  $2,000,000  in  payment.  He  advocates  as  a  means  of  retiring  the  bonds  the  establishment 
of  a  toll  system  on  foot  passengers  and  automobiles  at  the  respective  rates  of  1  and  5  cents  each. 
Assuming  the  ratio  of  foot  passengers  to  automobiles  to  be  ten  to  one,  how  many  of  each  would  be 
necessary  to  pay  the  interest  annually  and  create  a  fund  which  placed  at  the  same  rate  of  interest 
would  be  sufficient  to  retire  the  bonds  at  maturity? 

Note:     $1  compounded  at  4%  for  20  years=2.19112314. 

133.  (From  Kansas  and  Missouri  C.  P.  A.  Examination.) 

When  auditing  the  books  of  a  company  which  are  not  in  balance  the  following  errors  are  discovered : 

1.  A  check  drawn  for  $110  is  entered  in  the  cash  book  as  a  collection  of  $100  and  posted  to  the 
debit  of  the  creditor's  account  as  $110. 

2.  A  customer's  credit  memo  of  $25  is  included  as  a  sale  and  posted  to  the  credit  of  the  cus- 
tomer's account  as  $20. 

3.  The  debit  side  of  the  cash  book  is  underfooted  $100,  and  a  check  drawn  for  $100  in  payment  of 
a  creditor's  account  is  not  entered  in  the  cash  book. 

4.  Discounts  received  of  $250  are  posted  as  discounts  allowed. 

5.  Capital  stock  to  the  par  value  of  $5,000  was  issued  and  charged  to  the  president.  $2,500  of  this 
stock  was  sold  by  him  at  par  and  the  proceeds  credited  to  the  Capital  Stock  account.  The  balance  of 
the  issue,  $2,500,  was  later  canceled,  the  Capital  Stock  account  charged  and  the  president's  account 
credited  with  that  amount. 

To  correct  the  foregoing  errors  prepare  journal  entries  for  accounts  in  the  general  ledger  and 
subsidiary  ledgers  which  are  controled  by  accounts  in  the  general  ledger. 

134.  (From  Michigan  C.  P.  A.  Examination.) 

A  man  has  saved  $10,000,  which  is  invested  at  6%.  He  is  working  for  a  concern  at  a  salary  of 
$100  a  month.  He  decides  to  go  into  business  for  himself.  He  invests  his  capital,  forfeiting  his  interest. 
He  devotes  his  time  to  the  business,  forfeiting  his  salary.  At  the  end  of  the  year  his  statement  shows  a 
profit  of  $2,000.  Can  the  business  be  said  to  have  made  $2,000,  or  did  it  in  reality  only  make  $200?  Dis- 
cuss fully  the  accounting  and  economic  principles  involved. 

Suppose  instead  of  money  loaned  his  capital  had  been  in  the  form  of  a  store  rented  for  $100  a 
month  and  he  canceled  the  lease  and  used  it  himself,  borrowing  what  money  was  needed  for  working 
capital  from  the  bank  and  paying  interest  for  same.     Would  that  alter  the  question  of  profit? 

107 


135.  (From  New  York  C.  P.  A.  Examination.) 

Wm.  Wirt  was  engaged  at  the  salary  of  $50  per  month  to  take  charge  of  a  branch  store  for  Bob 
White.  The  assets  and  liabilities  at  the  branch  store  Jan.  1,  the  day  that  Wm.  Wirt  took  charge,  were 
as  follows : 

Cash,  $300;  notes  payable,  $300;  accounts  payable,  $600;  notes  receivable,  $200;  merchandise  on 
hand,  $3,500;  accounts  receivable,  $160. 

At  the  end  of  the  year  Wirt  is  oflfered  one-half  interest  in  the  branch  store  for  one-half  net  capital 
of  same,  as  shown  by  the  books,  which  record  the  following: 

Insurance  paid,  $150;  expenses  paid,  $400;  sales,  $6,000;  inventory,  $3,000;  rent  accrued,  but  not 
paid,  $500;  merchandise  purchased,  $3,500;  salary  paid  to  Wirt,  $500;  notes  receivable,  $325;  accounts 
receivable,  $500.  There  are  also  outstanding  notes  payable,  $290;  interest  of  $30  has  been  paid,  and 
White  has  withdrawn  during  the  year,  $400.    Consider  the  value  of  unexpired  insurance  at  $50. 

Make  up  a  cash  account,  profit  and  loss  account  and  balance  sheet.  Show  White's  net  capital  to 
be  paid  by  Wirt  to  entitle  him  to  a  one-half  interest. 

136.  (From  New  York  C.  P.  A.  Examination.) 

A  firm  manufacturing  but  one  grade  of  cloaks,  insured  against  burglary,  claims  to  have  been 
robbed  on  the  night  of  September  10. 

The  proof  of  the  loss  filed  by  the  assured  contained  two  items  for  600  cloaks,  $12,000;  silk,  1,000 
yards,  $1,500. 

An  inventory  of  the  stock  on  hand,  consisting  of  cloaks,  cloth  and  silk,  had  been  taken  January  1, 
amounting  to  $118,500,  the  particulars  of  which  have  been  lost  or  destroyed. 

An  analysis  of  the  firm's  books  produced  the  following  information : 

Purchase  of  cloth,  37,500  yards  at  $1.00. 

Purchases  of  silk,  10,000  yards  at  $2.00. 

6,000  cloaks  were  manufactured,  consuming  cloth,  40,000  yards  at  $1.00;  silk,  10,000  yards  at  $2.00. 

9,000  cloaks  were  sold  between  Jan.  1  and  Sept.  10. 

Cost  of  sales,  per  cloak,  for  material $10.00 

Cost  of  sales,  per  cloak,  for  labor  and  sundries 7.00 


$17.00 


Inventory,  September  11—2,500  cloaks  at  $17.00;  12,500  yards  cloth  at  $1.00;  5,000  yards  silk  at 
$2.00. 

Prepare  a  report  proving  or  disproving  the  claim.  '  ^ 

137.     (From  New  York  C.  P.  A.  Examination.) 

The  office  of  a  firm  of  traders  doing  business  in  San  Francisco  was  destroyed  by  an  earthquake. 
The  books  of  account,  which  had  been  fully  posted,  were  badly  damaged.  The  following  ledger  ac- 
counts were  found  to  be  legible  : 

Purchases,  net,  $69,000;  Discounts  Lost,  $640;  Discounts  Gained,  $3,450;  Sales,  $54,000;  Bills  Re- 
ceivable, $33,000.  Inquiry  at  the  bank  disclosed  a  balance  on  deposit,  $129,000.  Bills  receivable  amount- 
ing to  $45,000  had  been  discounted  at  the  bank.  An  audit  of  the  checks  paid  by  bank  showed  that 
$99,000  had  been  paid  creditors  (including  $60,000  notes  payable).  A  balance  sheet  prepared  at  the  last 
closing  of  the  books  was  produced,  containing  the  following  items : 

Cash,  $60,000 ;  accounts  receivable,  $126,000 ;  loans  receivable,  $24,000 ;  real  estate,  $90,000 ;  notes 
receivable,  $78,000;  capital,  $318,000;  notes  payable,  $60,000. 

Prepare  a  trial  balance  supplying  the  missing  accounts. 

108 


138.  (From  Boston  High  School  Examination  for  Commercial  Teachers.) 

A   British   company   submitted   a   comparative  balance   sheet  to   its  American   stockholders,   the 
amounts  having  been  changed  to  United  States  monetary  terms. 

FRAWLEY  FLANNEL  COMPANY,  Ltd. 

General  Balance  Sheet,  January  1,  1915 

Liabilities                                                                                                1913  1914  1915 

Common  share  capital $540,000.00  $540,000.00  $1 ,080,000.00 

Preference  share  capital 300,000.00 

Debentures    405,000.00  405,000.00  720,000.00 

Bills  payable 135,000.00 

Sundry  creditors   18,476.00  22,054.00  55,746.00 

Debenture  reserve 135,000.00  157,500.00  180,000.00 

Depreciation  reserve 90,000.00  157,500.00  157,500.00 

Profit  and  loss 721,895.00  788,638.00  259,753.00 

$1,910,371.00  $2,070,692.00  $2,887,999.00 

Assets                                                                                                   1913  1914  1915 

Freehold  premises $412,938.00  $426,198.00  $419,953.00 

Machinery  and  fittings  account 555,007.00  580,021.00  653,757.00 

Late  construction 580,766.00 

Stock 354,213.00  571,251.00  602,957.00 

Deposit  account  and  receivables 588,213.00  493,222.00  630,566.00 

$1,910,371.00  $2,070,692.00  $2,887,999.00 

a.  After  scrutinizing  the  balance  sheet,  give  a  brief  history  of  the  business  for  the  years  1914  and 
1915,  and  account  for  the  property  changes. 

b.  No  cash  dividend  was  paid  in  1915,  but  a  common  share  dividend  was  made  for  the  amount  of 
the  increase.    What  were  the  profits  of  the  year? 

139.  (From  Illinois  C.'  P.  A.  Examination.) 

The  balance  sheets  of  the  Greenleaf  Manufacturing  Company,  at  December  31,  1913,  and  December 
31,  1914,  may  be  summarized  as  follows: 

Dec.  31,  1913  Dec.  31, 1914 

Good  will $200,000.00  $230,000.00 

Land  and  buildings 450,000.00  750,000.00 

Machinery   200,000.00  400,000.00 

Tools    40,000.00  80,000.00 

Unexpired  insurance 3,000.00  4,000.00 

Inventories  400,000.00  375,000.00 

Accounts  receivable 175,000.00  250,000.00 

Cash  25,000.00  20,000.00 

Investment  in  stocks  and  bonds 95,000.00           

$1,588,000.00  $2,109,000.00 

Capital  stock $800,000.00  $1,100,000.00 

Bonds   350,000.00  500.000.00 

Bank  and  other  loans 70,000.00  80,000.00 

Accounts  payable '. 145.000.00  125.000.00 

Accrued  interest 7,000.00  1 1.000.00 

Accrued  taxes 4.000.00  6.000.00 

Surplus 212.000.00  287,000.00 


$1,588,000.00   $2,109,000.00 
109 


During  the  year  a  dividend  of  4%  was  declared  and  paid  on  the  stock  outstanding  at  the  begin- 
ning of  the  year.  $7,000.00  was  provided  for  the  depreciation  of  the  buildings,  $16,000.00  for  machinery, 
and  $4,000.00  for  tools.  The  bonds  were  sold  for  par,  and  the  stock  was  sold  at  90  and  the  difference 
was  charged  to  goodwill  account. 

'  In  the  light  of  the  above  facts  interpret  the  changes  that  have  taken  place  in  the  financial  position 
of  the  company  between  the  two  dates  and,  so  far  as  possible,  indicate  how  they  were  effected. 

140.  (From  Maine  C.  P.  A.  Examination.) 

The  Stafford  Moving  Picture  Machine  Company,  leasing  moving  picture  machines  for  theatres, 
has  1,000  machines  in  operation.  On  January  1,  1915,  the  company  decides  to  increase  the  number 
of  its  machines  80%,  and  places  an  order  with  the  manufacturers  of  the  machines,  who  agree  to  com- 
plete and  deliver  the  new  machines  in  equal  quarterly  instalments.  The  company  arranges  to  bor- 
row $60,000.00  by  the  sale  of  five-year  6%  notes,  it  being  agreed  that  a  sum  equal  to  20%  of  the  total 
issue  shall  be  set  aside  annually  out  of  the  profits  of  the  company  for  the  redemption  of  such  notes. 

The  average  annual  cost  for  maintenance  was  found  to  be  $120  per  machine,  and  $24,880  was 
estimated  for  other  expenses.  What  annual  charge  per  machine  would  the  company  have  to  make 
in  order  to  meet  its  obligations  and  pay  a  dividend  of  10%  on  $200,000  of  its  capital  stock? 

141.  (From  Maine  C.  P.  A.  Examination.) 

Holman  &  Co.  sold  to  Fagan  &  Lovejoy  a  bill  of  goods  for  $1,000 — terms  2%  10  days,  net  30  days. 

Fagan  &  Lovejoy  did  not  take  advantage  of  the  cash  discount,  but,  when  the  invoice  was  due, 
offered  in  settlement  cash  $333.34  and  two  notes  for  $333.33  each,  one  at  60  days  and  one  at  90  days, 
payable  at  their  bank,  the  Fidelity  Trust  Co. 

Holman  &  Co.  accepted  this  settlement,  and  carried  the  notes  for  30  days.  They  then  discounted 
them  at  their  bank,  the  Portland  National,  at  5%. 

Fagan  &  Lovejoy  paid  the  60  days'  note  when  it  matured.  Three  days  before  the  90  days'  note 
was  due,  Holman  &  Co.  received  from  Fagan  &  Lovejoy,  a  30  days'  note  for  $200  payable  at  Fagan  & 
Lovejoy's  bank,  the  Fidelity  Trust  Co.,  together  with  a  check  for  the  balance  of  the  90  day  note,  plus 
the  discount  on  the  new  note  at  6%,  with  a  request  that  Holman  &  Co.  take  care  of  the  90  days'  note, 
which  they  agreed  to  do. 

Holman  &  Co.  discounted  the  new  note  at  5%  at  their  bank,  the  Portland  National,  when  they  took 
up  the  90  day  note. 

The  $200  note  is  paid  by  Fagan  &  Lovejoy  at  maturity. 

Journalize  the  above  transactions  for  Holman  &  Co. 

142.  (From  Massachusetts  C.  P.  A.  Examination.) 

In  March,  1912,  John  Doe  bought  a  dismantled  plant,  pa3^ing  therefor  $20,000,  equipped  it  with 

machinery,  and  engaged  in  manufacturing. 

He  decided  to  incorporate  his  business.     On  January  1,  1913,  he  called  in  an  accountant,  who  found 

a  single  entry  ledger,  with  the  following  accounts,  written  up  to  the  close  of  business  on  December  31, 

1912: 

Dr. 

Real  estate $20,000.00 

Machinery   35,210.00 

Returns    83.00 

Allowances    184.16 

Sales  discounts,  (2%  on  billings) 587.20 

Freight  814.00 

Merchandise    21,288.10 

Labor    ! 4,614.75 

Interest 852.50 

Insurance,  (1  year  to  April  1,  1913) 750.00 

Accounts  receivable  (customers),  gross. 20,515.80 

Building  improvements   2,315.74 

Expense    261 .18 

110 


Cr. 

Mortgage $18,000.00 

Notes  payable 25,000.00 

Accounts  payable 18,752.40 

Sales   29,360.00 

The  accountant  found  additional  liabilities  for  unpaid  pay  roll,  $462.18,  and  current  bills,  $287.19. 
Reconcilement  of  the  bank  account  revealed  $1,163.40  cash  on  hand  on  January  1,  1913.  Inventory  at 
this  date  consisted  of  raw  material,  net,  $7,684.23 ;  stock  in  process,  $2,418.32 ;  finished  goods,  $4,- 
684.11.  Interest  on  mortgage  is  at  6%,  paid  to  September  1,  1912.  Notes  payable  are  on  demand, 
with  interest  at  5%,  paid  to  October  1,  1912. 

a.  .  Write  the  proper  entries  for  recording  on  the  books  of  the  corporation  the  acquirement  of 
this  business,  limiting  the  issue  of  capital  stock  to  multiples  of  $1,000. 

b.  State  how  much  cash  was  received  from  customers  prior  to  January  1,  1913. 

143.  (From  the  Massachusetts  C.  P.  A.  Examination.) 

The  net  profit  of  a  business  May  1,  1914,  $8,905.82;  Inventory,  December,  1911,  $3,137.24;  Pur- 
chases, $110,831.64;  Sales,  $163,376.08;  Factory  Labor,  $38,999.16;  Factory  Expenses,  $6,403.94;  Re- 
pairs, $32.00;  Telephone,  $832.12;  Insurance,  $392.46;  Advertising,  $28.00;  Commissions  Paid,  $1,- 
922.02;  Interest  Paid,  $626.00;  Legal  Expenses,  $35.00;  drawn  out  by  proprietor,  $3,196.00. 

From  the  foregoing  information  ascertain  Merchandise  Inventory  on  May  1,  1914. 

144.  (From  the  New  York  C.  P.  A.  Examination.) 

A  fire  in  a  manufacturing  concern  resulted  in  a  loss  on  machinery,  $5,000;  merchandise,  $10,000; 
office  equipment,  $3,000 ;  which  amount  of  $18,000  was  agreed  on  and  paid  by  the  insurance  companies. 
Give  the  entries  necessary  to  record  properly  the  above  transactions  on  the  books  of  the  concern.     • 

Section  2 — Theory  of  Accounts 

145.  (Illinois  C.  P.  A.  Examination.) 

Assuming  an  automobile  manufacturing  company  made  a  contract  for  rubber  tires  at  $35  each 
with  the  understanding  that  it  was  to  receive  a  rebate  of  $5  a  tire  if  the  purchases  exceeded  40,000 
tires,  and  that  at  the  end  of  the  season  when  the  accounts  were  made  up,  say  on  July  31,  it  was  found 
that  45,000  tires  had  been  purchased  and  a  claim  for  the  rebates  was  thereupon  made  and  a  check  in 
settlement  was  received  on  August  31  following.  On  July  31  there  were  15,000  tires  on  hand.  At 
what  price  should  they  be  valued  for  inventory  purposes  and  how  should  the  rebate  be  dealt  with  in 
the  accounts  for  the  year  ending  July  31  ? 

146.  (Colorado  C.  P.  A.  Examination.) 
Define  or  explain : 

a.  Appreciation,  e.  Deficiency  account, 

b.  Depreciation,  f.  Secret  or  hidden  reserve. 

c.  Internal  check,  g.  By-product, 

d.  Deferred  assets,  h.  Imprest  cash. 

147.  (Michigan  C.  P.  A.  Examination.) 

a.  A  has  $5,000  invested  in  a  business.  He  sells  B  a  half  interest  for  $3,000  and  keeps  the  money. 
Make  the  entry, 

b.  A  has  $5,000  invested  in  a  business.  He  sells  B  a  half  interest  for  $3,000  and  places  the  money 
in  the  business.     Make  the  entry. 


Ill 


148.  (Ohio  C.  P.  A.  Examination.) 

a.  Explain  and  illustrate  the  difference  between  capital  expenditures  and  revenue  expenditurei 

b.  What  is  the  effect  of  charging  revenue  expenditures  to  capital  accounts. 

149.  (Massachusetts   C.   P.  A.   Examination.) 

A  company  packs  a  coupon  in  each  box  of  goods  sold.  The  company  agrees  to  redeem  100  cou- 
pons with  premiums  costing  $1  apiece.     25%  of  the  coupons  are  never  presented  for  redemption. 

Prepare  sample  journal  entries  for  the  bookkeeper  to  follow  which  will  give  the  last  of  each 
month  the  expense  for  the  month  of  the  coupons  given  out,  the  amount  of  premiums  on  hand,  and  the 
gross  and  net  liability  for  outstanding  coupons,  and  state  briefly  how  these  entries  will  produce  the 
result  wanted. 

150.  (Pennsylvania  C.  P.  A.  Examination.) 

A  large  manufacturing  concern  purchases  most  of  its  machinery  on  the  instalment  plan,  in 
monthly  payments,  a  bill  of  sale  not  being  given  until  the  machinery  is  paid  for  in  full.  There  is  also 
a  royalty  paid  on  the  output  of  some  of  the  machines  bought  on  the  instalment  plan.  At  the  close  of 
the  year  there  are  several  machines  not  yet  paid  in  full.  How  would  you  treat  the  machinery,  the  in- 
stalments paid  and  the  royalty  in  your  statements? 

151.  (New  York  C.  P.  A.  Examination.) 

A  fire  in  a  manufacturing  concern  resulted  in  a  loss  on  machinery,  $5,000;  raw  material,  $10,000; 
finishing  goods,  $25,000 ;  which  amount  of  $40,000  was  agreed  on  and  paid  by  the  companies.  Give  the 
entries  necessary  to  record  properly  the  above  transactions  on  the  books  of  the  concern. 

152.  (New  York  C.  P.  A.  Examination.) 

At  date  of  closing  two  contracts  are  in  hand  and  uncompleted;  one  for  $1,200,  estimated  to  cost 
$900  is  three-quarters  finished  and  is  already  charged  to  customer  at  $1,200;  the  other  for  $2,000,  esti- 
mated to  cost  $1,500  is  half-finished,  and  no  entry  has  been  made  therefor.  Suggest  entries  necessary 
to  adjust  these  accounts  so  that  anticipation  of  profits  will  not  occur. 

153.  At  the  time  of  taking  inventories  and  closing  its  accounts,  preparatory  to  ascertaining  its 
financial  condition,  a  corporation  has  obligations  under  contracts  to  pay  for  raw  materials  to  arrive, 
on  which  no  payments  have  been  made.  At  the  time  of  closing  the  accounts,  the  prices  of  the  con- 
tracts are  in  excess  of  the  market  prices  for  deliveries  corresponding  with  the  contracts.  State : 
(a)  how  this  condition  should  be  reported  in  the  accounts  and  statement  of  financial  condition,  and  (b) 
your  reasons. 

154.  (From  Examination  for  Admittance  to  the  American  Institute  of  Accountants.) 
Explain  the  relationship  between  a  sinking  fund  and  an  allowance  for  depreciation.     It  is  claimed 

that  in  municipal  enterprises  the  requirement  that  rates  must  be  high  enough  to  provide  both  for  a 
sinking  fund  to  pay  off  the  bonds  and  also  for  a  "Reserve  for  Depreciation"  with  which  to  replace  the 
plant  results  in  a  double  charge  to  consumers.     Criticize  or  explain  this  theory. 

155.  Do  you  approve  of  a  business  concern  keeping  more  than  one  ledger?  If  so,  why,  and  how- 
would  the  different  ledgers  be  characterized  ?  What  advantages  do  you  see  in  loose  leaf  ledgers  and  in 
what  kinds  of  business  would  they  be  most  useful?  Under  what  circumstances  would  you  advise  the 
use  of  card  ledgers? 

156.  (Wisconsin  C.  P.  A.  Examination.) 

The  partnership.  Black  and  White,  has  insured  the  life  of  Black  for  $50,000,  the  policy  being 
payable  to  the  firm.  The  annual  premium  is  $989.60.  The  cash  surrender  value  of  the  policy  at  the 
end  of  the  third  year  is  $2,150.62;  fourth  year,  $3,012.20;  fifth  year,  $3,867.25. 

At  the  end  of  the  fifth  year  Black  dies  and  the  policy  is  paid  to  the  firm  in  full. 

Show  by  journal  entries  how  the  transactions  pertaining  to  the  above  would  be  recorded. 

112 


157.  (Wisconsin  C.  P.  A.  Examination.) 

The  Good  Music  Company  sells  pianos  on  the  mstalment  basis.  On  January  2,  1914,  Jones  pur- 
chased a  piano  from  the  company  for  $375  to  be  paid  for  as  follows :  $25  down  and  the  balance  in 
quarterly  instalments  of  $50  each,  bill  of  sale  to  be  given  on  date  of  final  payment.  The  piano  cost 
the  company  $125.  The  four  instalments  for  1914  were  duly  received,  the  last  one  having  been  paid 
on  December  31. 

a.  Set  up  proper  ledger  accounts  covering  this  sale  and  the  payments  thereon. 

b.  Give  the  journal  entry  at  the  close  of  the  year  by  which  the  year  will  be  credited  with  its 
proper  proportion  of  the  credit  on  this  transaction. 

c.  Sketch  the  ruling  of  a  book  or  books  which  might  be  used  to  facilitate  the  handling  of  in- 
stalment sales  and  collections. 

158.  (Michigan  C.  P.  A.  Examination.) 

A  manufacturing  company  purchased  a  large  stock  of  material  during  the  year  at  low  prices  but 
at  time  of  annual  inventory  values  had  materially  increased.  How  in  your  opinion  should  inventory 
and  loss  and  gain  be  stated  on  the  books? 

159.  (New  York  C.  P.  A.  Examination.) 

Prepare  a  ruling  for  a  sales  book  to  provide  (1)  total  monthly  postings  to  three  goods  accounts, 
(2)  the  separation  of  cash  sales,  from  charge  sales,  (3)  supplementary  distribution  of  sales  among  four 
salesmen's  columns,  (4)  prepare  pro  forma  journal  entry  for  the  monthly  closing  and  posting  of 
such  a  book. 

160.  (Maryland  C.  P.  A.  Examination.) 

In  C2Ke  of  total  loss  of  merchandise  by  fire,  the  books  being  saved,  how  would  you  prepare  a  claim 
to  submit  to  the  insurance  company  covering  the  loss? 

161.  (Illinois  C.  P.  A.  Examination.) 

A   manufacturer  finds   that  during  three  months  his  goods  have  cost  80%  on  the  selling  price : 

Raw    material 30% 

Wages    20 

Rent    05 

Fuel     10 

General   expenses    15 

80 

What  should  he  add  to  his  selling  price  to  obtain  the  same  profit  if  the  following  advances  take 
place? 

Coal     50% 

Material   05 

Wages    02>4 

162.  (Massachusetts   C.   P.   A.   Examination.) 

A  manufacturer  renders  the  following  statement  for  credit  purposes : 

Assets  Liabilities 

Residence $30,000  Mortgage,  residence   $12,000 

Plant     140,000  Mortgage,  plant 60,000 

Inventory    90,400  Notes  payable    25,000 

Accts.  receivable   3,500  Accts.  payable    19,650 

Cash    625  Surplus 147,875 


$264,525  $264,525 

From  this  statement,  what  inferences  would  you  draw  as  to  the  condition  of  his  business? 

113 


163.  (Massachusetts  C.  P.  A.  Examination,) 

A  missionary  society  is  the  recipient  of  small  voluntary  contributions.  Many  of  these  come 
through  the  mail  in  the  shape  of  bills,  coin,  and  postage  stamps.  What  steps  would  you  suggest  to 
safeguard  such  funds  from  peculation  by  the  clerks  handling  them  and  the  accompanying  letters? 

164.  (Massachusetts  C.  P.  A.  Examination.) 

In  the  trial  balance  of  a  corporation,  December  31,  1910 — the  end  of  a  fiscal  term — there  is  a 
debit  of  $50,000  against  John  Doe,  for  a  payment  to  him  on  account  of  material  purchased  from  him. 
The  material  is  to  be  delivered  after  said  date.  How  should  this  be  classified  in  the  balance  sheet, 
December  31,  1910? 

165.  (From   Examination  to  Admittance  to   the  American   Institute  of  Accountants.) 

a.  How  would  you  deal  in  the  balance  sheet  of  a  corporation  with  shares  recovered  from  a  vendor 
to  whom  they  had  been  issued  as  fully  paid  and  who  had  returned  them  in  settlement  of  a  claim  for 
fraudulent  misrepresentation  in  respect  of  the  property  sold  by  him  to  the  corporation? 

b.  How  would  you  deal  with  these  shares  for  the  purposes  of  a  dividend? 

166.  (From  Examination  for  Admittance  to  the   American   Institute  of  Accountants.) 

When  a  corporation  undertakes  its  own  construction  work  on  what  basis  is  it  permissible  for  it 
to  make  charges  to  property  account  in  respect  thereof?  On  what  basis  would  you  personally  recom- 
mend that  the  charges  should  be  made? 

Give  your  reasons. 

167.  (From  Examination  for  Admittance  to  the  American   Institute  of  Accountants.) 

A  corporation  was  formed  which  acquired  several  plants,  issuing  therefore  $17,000,000  bonds  and 
$24,000,000  stock.  It  was  well  known  at  the  time  that  this  capitalization  exceeded  the  true  value  of 
the  assets  (including  goodwill)  acquired,  to  an  extent  of  $11,000,000.  In  the  first  year,  after  paying 
expenses  and  interest  on  bonds,  the  business  yielded  considerable  net  income.  May  such  net  income 
be  used  to  pay  dividends,  or  must  it  be  first  applied  towards  making  up  the  $11,000,000? 


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